Frontline Ltd (NYSE: FRO) stock lost over 4.1% on 14th June, 2019 (as of 12:46 pm GMT-4; Source: Google finance)
The cost of insuring tankers to ship Middle East crude looks set to jump after a second spate of attacks on vessels in the region in just over a month underscored escalating tensions in the oil-exporting region. DNK insured the Norwegian-owned Front Altair for the full value of the vessel, according to the person familiar. A ship of that tanker’s size is worth between $30 million and $50 million, according to another person with knowledge of the matter. Insurers provide war policies that pay out the value of ships damaged or destroyed by acts of both terrorism and war. The Front Altair’s cargo of naphtha would be insured under a separate policy.
Two oil tankers were attacked in the Gulf of Oman on Tuesday, just 32 days after four other carriers were targeted nearby. The region was designated as a listed area after those incidents, a classification that gives underwriters room to charge more. A so-called “additional premium” that owners pay when sailing to the Persian Gulf is likely to rise with immediate effect, the Hellenic War Risks Club, an insurer, said in a notice on its website.
Further, shipping companies should consider diverting vessels from the area where the two vessels were attacked Thursday, industry group BIMCO, the largest international shipping association for owners, said in a security advisory to its members. Tensions in the Strait and the Gulf are now at the highest they can be without an actual armed conflict, the group said in a separate statement. On the other hand, Intertanko, the biggest trade organization for oil tanker owners, said it is “extremely worried” about the safety of crews in the region.
Meanwhile, escalations that disrupt Middle East oil supplies are relatively rare. The Iran-Iraq war coincided with a big slump in OPEC oil output in the first half of the 1980s. That conflict saw tankers destroyed as the two countries tried to damage one another’s economies. In the short-term the rates for chartering ships in the Middle East is expected to rise as some owners consider avoiding the region, lowering supply.
Overall, the shares of tanker companies responded bullishly, suggesting a view among some investors that the tensions could drive up freight rates.