War risk premiums for ships transiting the southern Red Sea have sharply increased, reaching over 1% of a vessel's value, up from approximately 0.3% recently and 0.75% just before a key Houthi announcement. For certain Saudi-linked ships calling at southern Red Sea ports like Jizan and Al Shuqaiq, indicative war risk premiums have been quoted as high as 3%. Even minor increases in these rates can add hundreds of thousands of dollars to the cost of a single seven-day voyage. This surge follows recent Houthi attacks, including claims of targeting Saudi-owned tankers ENCELIA and LAYLA with missiles and drones.
The heightened risk is particularly impacting Saudi ports closer to Yemeni territory. While Jeddah and Yanbu, located further north and closer to the Suez Canal, currently see lower premiums around 0.1%, the overall increase reflects a significant re-evaluation of risk in the region. For example, a 3% premium on a $100 million ship could translate to a $3 million insurance cost for a single risk period. This situation echoes previous Red Sea disruptions and demonstrates how quickly the insurance market can react to geopolitical instability.
The Houthis' recent announcement of a naval blockade against Saudi Arabia has further escalated concerns among shipping and insurance industries. Transit activity through the Bab el-Mandeb strait reportedly fell by 30% on one day, with total crossings dropping from 41 to 29 vessels. While cover generally remains available, it is often on restrictive terms and at higher prices, materially impacting the economic viability of voyages. Industry experts note that while insurance costs are a factor, a shipping company's willingness to transit also depends on their risk appetite regarding potential attacks and the safety of their crew. This disruption not only raises insurance costs but also could lead to reduced vessel availability, longer voyages, and higher fuel costs, with broader implications for global trade, particularly oil and gas prices.
