Saudi Arabia Creates Insurance Pool as Red Sea Risks Surge

The Government of Saudi Arabia has appointed the Saudi Reinsurance Company to lead a national marine war risk insurance pool to combat a crisis in its oil export strategy. War-risk insurance premiums for tankers at Red Sea ports have surged, with rates at Yanbu tripling to 3% and reaching 7% at southern ports like Jizan. These costs now nearly equal the 6% to 9% premiums required to transit the Strait of Hormuz, effectively neutralizing the strategic advantage of the multi-billion dollar East-West pipeline designed to bypass that chokepoint.

The crisis follows September 11 drone attacks that shut down the East-West pipeline, forcing Aramco to restart the line at reduced rates and divert 60 million barrels for loading from Ras Tanura. Security risks are further heightened by Iran-aligned Houthi militants, who captured Perim Island and vowed to target Saudi-linked shipping near the Bab el-Mandeb strait. Some shipping groups, including Heidmar Inc, have already begun avoiding Saudi ports due to these risks.

While the United States Armed Forces provide aerial support for vessels in the Strait of Hormuz, no comparable protection exists in the Red Sea. This security gap has led traders to move tankers to Port Said, Egypt, for ship-to-ship transfers to avoid the Suez Canal.