The sinking of a Greek-owned tanker after being targeted by a drone launched by the Houthi group, designated as a terrorist organization, last week has significantly increased risks in the Bab el-Mandeb Strait, pushing them to "a new level," according to a report by Bloomberg on Friday, June 21, 2024. This escalation has resulted in a surge in insurance costs for ships transiting the waterway.

The commercial vessel "Tutor," owned by a Greek company, was damaged while sailing in the Red Sea last week after an attack by the Houthi group using a drone off the coast of Yemen. The attack resulted in the death of one crew member and injuries to others, ultimately leading to the ship's sinking.

Insurance Costs Skyrocket

Bloomberg reported that insurance premiums for ships transiting the Red Sea, calculated as a percentage of the ship's value, have risen to approximately 0.6% from a previous range of 0.3% to 0.4% following the recent attack.

This means, according to two market participants who spoke to the agency, a ship valued at $50 million would now have to pay $300,000 for a single passage. However, this rate remains slightly lower than the peak reached earlier this year when attacks intensified.

Not all ships are paying the increased insurance premiums. Bloomberg quoted market participants stating that Chinese vessels are still receiving a significant discount, "likely because they have been less targeted so far."

According to the agency, approximately 9% of global seaborne trade passed through Bab el-Mandeb last year, but this figure is expected to decline in 2024.

In a statement on Wednesday, 14 shipping trade groups declared, "This is an unacceptable situation, and these attacks must stop now. We have heard the condemnation and appreciate the words of support, but we urgently seek action to stop the illegal attacks on these workers and this vital industry."

The "Tutor," a relatively new vessel built in late 2022, could transport around 80,000 tons of coal and was estimated to be worth approximately $37.5 million when new, according to data from shipping services provider Clarkson.

The "Tutor" was not the only valuable ship to be sunk. The "Rubimar," built in 1997, was also sunk in March after an attack by the Houthis during their current campaign.

Since November 2023, the Houthi group has launched missile and drone attacks on commercial ships in the Red Sea, leading to increased maritime insurance costs and prompting many shipping companies to opt for the much longer route around the southern tip of the African continent.

In December 2023, the United States, a key ally of Israel, formed a multinational coalition to protect maritime traffic from attacks by the Houthi group, which is listed as a terrorist organization. Meanwhile, US forces have been carrying out strikes against Houthi military targets on an intermittent basis.