Saudi Arabia considers cheaper insurance to boost Middle East shipping

Saudi Arabia is reportedly considering the introduction of a cheaper, state-backed war and political risk insurance scheme to revitalize shipping in the Middle East. The Financial Times reported that the Saudi Finance Ministry held talks with brokers in London regarding the potential initiative, which aims to cover ships operating in the region.

This move follows months of maritime attacks by Iran and its proxy groups, particularly in the Strait of Hormuz. These attacks have led to a sharp decline in shipping traffic, from over 100 vessels daily to single digits at times. In response, insurance agencies have significantly raised prices and limited coverage for vessels, infrastructure, and cargo, with some refusing to cover ships navigating vital waterways like the Red Sea.

The economic impact of the conflict on Saudi Arabia has been substantial. The country's gross domestic product shrank by 4.8% annually in the second quarter, and its oil activity plummeted by 24.7% in the same period, according to official statistics. The proposed insurance scheme is seen as a measure to mitigate these economic consequences and restore confidence in regional shipping.

Under the potential plan, the Saudi Finance Ministry might offer a more affordable insurance option through a pool system. This insurance could provide up to $186 million in commercial cover for each insured event, such as seizures or missile attacks. While private insurers would still handle the initial layers of coverage, this state-backed fund would offer additional financial protection, aiming to make shipping routes more viable and secure.