New Delhi, March 8: Ship freight rates, which are already ruling high, are not expected to flare up to alarming levels in the event of a US attack on Iraq.
As a result, the upward pressure on oil prices due to higher transport costs will not be as severe as speculative elements are making out.
According to shipping industry experts, the additional war risk insurance premium for ships will be applicable only to the Persian Gulf ports located beyond the 24 degrees north latitude. Here again the premium will vary depending on how close the ships are to the war zone in Iraq.
Any ship entering Kuwaiti waters, which are very close to Iraq, may have to pay a risk premium of 1 per cent of the hull and marine (H&M) insured value.
However, ships which lift oil from ports such as Abu Dhabi and Dubai that are situated further south of Iraq are likely to be asked to pay around 0.5 per cent. The H&M value of a very large crude carrier (VLCC) ranges from around $ 35 million to $ 60 million depending on its vintage.
The exact premium will also vary from day to day depending on how the war progresses. The current war risk premium for a ship sailing to the Persian Gulf is around 0.025 per cent.
A large portion of the Saudi Arabian coastline lies south of 24 degrees North and thus will not even come in the war zone. Tankers bringing oil from these ports will not be paying the additional war risk premium at all.
Sources say during the US-Iraq war in 1991-92, there was no damage to ships and this will have a direct bearing on the current risk perception. In 1991, the Iraqi war machine was intact and still there was no fallout for shipping lines. With the sharp erosion in Saddam Husseins military strength, the probability of any damage to ships is far lower this time around.
There has been a spurt in oil movement in recent months as most countries are building up reserves since a US attack appears to be imminent. This has led to an increased demand for tankers and freight rates have already doubled over last year.
Indian Oil chairman M.S. Ramachandran does not expect any disruption in crude oil supplies. He cites the last war experience when prices suddenly increased for a fortnight or so when Kuwaiti oilfields had been set ablaze. However, they had come down to reasonable levels as oil production was stepped up by other countries. countries.