Exclusive: Insurance giant warns clients to avoid Red Sea after tanker struck
Insurance giant Gallagher has told shipping clients to avoid any travel through the Red Sea after a tanker it provided cover for was struck by the Houthi militia.
The Lloyd’s of London broker had insured one of two ships that were attacked by Yemen’s Iran-backed militia, a person familiar with the matter told City PM, causing a fire to break out on board and the ship to return to port.
Along with a group of underwriters, Gallagher is now advising clients not to attempt any voyages through the narrow stretch of ocean, two people with knowledge of the matter said, underscoring fears that a new permanent front has opened up in the Middle East conflict.
Focus on the Iran war has largely been restricted to the chokehold Tehran has had over the Strait of Hormuz, the vital Persian Gulf shipping lane through which over a fifth of oil and gas passed before the war.
The Iranian regime has installed a blockade across the passage for much of the past five months, preventing its Middle Eastern neighbours from the oil exports that remain the lifeblood of their once-booming economies.
But in a dramatic escalation this week, the Houthis – an Iran-backed militia that operates in Yemen – launched a similar barricade for Saudi ships in the Red Sea’s Bab al-Mandab strait. On Wednesday, the guerilla group carried out missile attacks on two separate tankers attempting to bypass the blockade, with Saudi state media confirming one vessel caught fire after the attacks.
Red Sea blockade sparks oil price surge
Gallagher is one of the so-called Big Five brokers that dominate the industry’s maritime and cargo sectors. The New York-listed group did not underwrite the policy on the attacked ship, meaning it is not facing a hefty payout. While it is advising clients against fresh voyages, City PM understands the broker will still provide vessels with cover in the Red Sea should ship owners choose to try and bypass the blockade.
The Houthis’ actions means the Suez Canal, which runs through Egypt into the Mediterranean Sea, is now the only avenue through which Iran can export its vast oil production, hampering the huge volumes of trade it did with the likes of India and Pakistan.
Oil prices have spiked dramatically on the continued escalation, rising as much as 16 per cent between Monday and Thursday. Brent crude peaked at $102 a barrel before falling through Friday.
James McCormick, research director at Cavendish, said the Houthis’ move represents a major blow to Saudi Arabia’s oil and gas export capacity. The petrostate had been using a vast pipeline to reroute oil from its east coast to the Red Sea to avoid Iran’s Hormuz blockade, which is itself now hemmed in by the Iranian ally.
“The market is increasingly pricing a broader kind of logistic delivering supply shock,” he told City PM. “At the moment this is keeping Brent vulnerable to sustained trading over $100 a barrel.”
Gallagher declined to comment.