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Tensions In The Gulf And Iran And The Impact On Insurance Premiums

In The iPMI Picture: Tensions In The Gulf And Iran And The Impact On Insurance Premiums. In The iPMI Picture: Tensions In The Gulf And Iran And The Impact On Insurance Premiums.

By Jonathan Moss, DWF Partner, Head of Transport and Shipping.

Increasing uncertainty and high political instability in the Gulf region is likely to lead Insurers to raise premiums, renegotiate terms of cover and introduce riders to Marine and Energy contracts of insurance and reinsurance. The past two years has seen a dramatic deterioration in Qatar's diplomatic relations with the UAE over allegations of Qatar's support for what the UAE considers to be terrorist groups.  Allegations include that Qatar is funding radical ideology and extremism. Restrictions were introduced and Qatari owned ships were prevented from operating in the Gulf  and UAE vessels heading to Qatar's port were redirected. 

In February this year, the UAE partially lifted a ban on Qatari shipping.  Qatari-origin cargoes can now enter the UAE's ports and vice versa. However, Qatari-owned or -flagged vessels are still banned from the UAE, and UAE-flagged vessels are still not permitted to visit Qatar.

The disharmony between Qatar and UAE is symptomatic of other tensions in the wider region. The antagonism between the US and Iran intensified after the US ended exemption extensions for sanctions on Iran oil sales. Iran has threatened to "close" the Strait of Hormuz and to scale back its obligations under the 2015 nuclear deal if the US was to halt Iranian energy exports.

On 12th May, two Saudi oil tankers, as well as a Norwegian and a UAE-flagged ship, were attacked.  The attack took place amid increasing Saudi animosity towards Iran. To date it is unclear who was responsible for the attacks. Limpet mines were used in the May 12 coordinated attacks, which left large holes in the hulls of the four tankers, but did not cause more extensive damage or oil spills. Limpets are a type of naval mine that attach to their target with magnets. Representatives from the UAE, Saudi Arabia and Norway stated “It appears most likely that the mines were placed on the vessels by divers deployed from fast boats,” the statement said. “While investigations are still ongoing, these facts are strong indications that the four attacks were part of a sophisticated and coordinated operation carried out by an actor with significant operational capacity, most likely a state actor.”

In a war of words, Saudi Energy Minister Khalid Al-Falih said the incident aims “to undermine the freedom of maritime navigation, and the security of oil supplies to consumers all over the world.” U.S. officials believe Iran had encouraged Yemeni Houthi militants or Iraq-based Shi’ite militias to carry out the attacks. Two days later armed drones attacked two Saudi oil pumping stations. In response, the U.S. deployed an aircraft carrier, bomber planes and defence missiles to the region, amid worsening relations with Iran.

Insurance Implications

Global insurance markets are accustomed to factoring geopolitical uncertainty into pricing models, nevertheless this geopolitical fallout has not been seen since 2003. In 2003, rates for Hull & Machinery, War Risk cover for tankers in the Persian Gulf increased significantly owing to the political instability in the region.

This coming year will see a drive by Insurers to raise premium in the face of a cocktail of instability in the region. Global Marine Insurers are closely monitoring the current situation employing complex risk models.

Determining the level of risk in the region is difficult as long periods of calm are followed by a spate of notifications to Marine Insurers of large claims caused by acts of aggression. Following the incidents involving the Saudi oil tankers on 12th May, London Market Marine Insurers met on 16th May to consider whether to increase rates for tankers in the Arabian Gulf.

The Joint War Committee (JWC), which includes LMA members and insurance providers, met extraordinarily to discuss the issue.  As a result, London Market Marine Insurers have extended the list of waters deemed high risk under their Hull War, Piracy, Terrorism and Related Peril policies to include Oman, the United Arab Emirates and the Gulf after recent ship attacks off Fujairah. Saudi Arabia's risk areas were expanded to include its coasts.  The JWC has indicated that premium increases will vary. Given the risk of hostility in the Persian Gulf, Underwriters will be closely scrutinising voyages on a case-by-case basis with premium increases covering vessels in the region a near certainty

About The Author

Jonathan's practice covers multi-jurisdictional litigation and arbitration in the marine, non-marine and reinsurance sectors and matters as diverse as professional indemnity and D&O risks, shareholder and complex contractual disputes.

Jonathan acts for clients in the full range of commodities, shipping and commercial litigation involving, for example, port facilities, tankers, liquid cargoes and metals, and advises on contamination claims, sale of goods issues and cases arising from salvages. He also drafts a range of contracts including Storage Agreements and Terminal Usage Agreements.

The Legal 500 states,"DWF's shipping and commodities practice is led by the 'brilliant' Jonathan Moss." 

Jonathan has been recommended in successive editions of the major legal directories since 2007. These publications describe him as "first rate" (The Legal 500, Insurance and Reinsurance), "maintaining a sterling international marine, commodity and insurance and reinsurance practice" (Chambers UK, Insurance and Reinsurance), "commercially minded" (The Legal 500, Shipping) and "a key player for commodity disputes" (The Legal 500: Finance: Physical Commodities).

He is visiting lecturer in International Shipping and International Insurance Law at Queen Mary University of London. 

As Head of DWF's Transport sector, he specialises in working with companies involved in the shipping, aviation, rail, automotive and road transport and logistics sectors.

Jonathan is fluent in French and is listed counsel for the French Consulate in London.

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