Talks are under way between French President Emmanuel Macron and Saudi Arabia and other Gulf states over a publicly backed vehicle that would assume part of the insurance risk for vessels transiting the Strait of Hormuz. The stated aim of the proposed arrangement is to facilitate deliveries of energy by reducing the cost of shipping through the waterway. Discussions are ongoing, and no agreement has been concluded.
Under the concept being discussed, the state-backed vehicle would take on a share of the insurance exposure tied to ships moving through the strait. With a public entity absorbing part of that risk, the cost of insuring each transit would fall. Lower insurance costs would in turn reduce the overall cost of shipping energy through the strait, the outcome the discussions are designed to bring about.
The strait is the transit point the proposal is built around, and the insurance burden in question attaches to vessels making that passage. For shipowners and charterers, the cost of cover is part of the expense of every cargo moved through the route. Shifting a share of that risk to a public backer would reduce the amount of exposure commercial parties have to price into each voyage.
If the talks produce an agreement, the arrangement would amount to governments sharing part of the commercial insurance burden on a specific shipping route. For the energy industry, lower shipment costs through the strait would ease the expense of moving cargoes and could make deliveries through the waterway easier to arrange. The outcome remains open, with Saudi Arabia and the other Gulf states continuing to discuss the proposal with Macron.
Source: Rigzone
