Israel Weighs Ending War Risk Insurance for Ships Amid Regional Tensions
Translated & summarized from Globes by baba
Israel is considering ending its state-backed war risk insurance for cargo ships, which expires November 30, amid rising regional tensions and attacks on vessels. The insurance has been crucial for maintaining shipping routes, especially after incidents like the sinking of the Contship Jet. Meanwhile, Egypt's Suez Canal revenue has plummeted due to Houthi blockades, and major shipping lines are cautiously returning to the Red Sea. Experts warn the end of state insurance could disrupt supply chains and increase costs for Israeli importers.
The story in 5 lines · by baba
- Israel may end state war risk insurance for ships on November 30 amid rising regional conflict.
- A ZIM-serviced ship sank after being attacked by unmanned vessels in the Black Sea.
- Egypt's Suez Canal revenue has dropped 47.7% due to Houthi blockades in the Red Sea.
- Major shipping companies are returning to the Red Sea route despite ongoing Houthi attacks.
- Experts warn ending state insurance could disrupt supply chains and increase import costs.
As Middle East tensions escalate, with the possibility of renewed conflict between Iran, the US, and Israel looming, Israel's government is considering ending its war risk insurance coverage for cargo ships. This coverage, provided through a compensation fund established by the Ministry of Finance in March, is set to expire on November 30, potentially leaving shipping companies without state backing.
Last week, a Greek-owned container ship, the Contship Jet, operating for ZIM, was attacked by three unmanned surface vessels (USVs) in the Black Sea and sank. This incident highlighted the importance of the state-backed insurance. Meanwhile, shipping traffic through the Strait of Hormuz, which handles a quarter of oil trade, has been severely impacted by Iranian blockades and US sanctions. Houthi rebels in Yemen are also disrupting shipping, primarily targeting Saudi Arabia and controlling the Bab el-Mandeb strait, a key route for about 12% of oil trade.
The Egyptian parliament recently approved President Abdel Fattah el-Sisi's request for a mandate to send military forces or provide defensive aid to Saudi Arabia, possibly due to the Houthi blockade. The Suez Canal, a vital revenue source for Egypt, has seen a significant drop in activity and revenue due to the Houthi actions during the current conflict, with financial year 2024-2025 projections showing a 52% annual decrease in canal activity and a 47.7% drop in revenue to $3.8 billion.
Amir Dahan, Manager of the War Damage Fund at the Tax Authority, clarified in March that cargo lost due to ship hijacking in the context of war against Israel is considered war damage and is compensable, provided it cannot be recovered. The current insurance policy covers war damage from cargo loading to unloading. War damage is defined as damage caused by enemy regular armies, acts of hostility against Israel, or IDF actions. Premiums vary based on cargo value, with rates of 0.5% annually for cargo up to $2 million and 4.5% annually for cargo exceeding $2 million.
Elad Barshan, an expert in customs and international shipping, noted a significant insurance gap, as many policies exclude war and terror risks. He warned that importers might find their goods arriving after the state insurance expires, complicating long-term planning for supply chains. Despite the risks, major shipping companies like Maersk and Hapag-Lloyd have recently announced their return to the Red Sea route, a move that could be jeopardized if wider regional conflict erupts. Barshan believes the return to the shorter Red Sea route is beneficial for the Israeli economy, potentially lowering shipping costs and consumer prices.