Market Watch : Crisis in the Gulf Unnerves Global Shipping Industry

Shipping industry stocks have tumbled on fears that the embargo on Iraqi and Kuwaiti oil will leave tankers idle as insurance companies impose war-zone premiums and sailors demand hazardous-duty pay.

Stock market shipping indexes have slumped 25% worldwide since Iraq invaded Kuwait on Aug. 2, said Lloyd’s List International in London.

It said Norwegian and U.S. shipping companies have been hit hardest. An Oslo business newspaper reported that some Norwegians’ shipping fortunes were halved on paper within two weeks of the invasion.

Loukas Hadjioannou, the Greek owner of the world’s largest independent tanker fleet, said 30% of all tankers could be laid up by the crisis.

“The main thing that this crisis has done is once again stress the volatility of the shipping market, how open it is to outside influences,” said David Glass, editor of Naftiliaki, a shipping magazine in Piraeus, Greece.

London experts said 60 ships, mostly tankers, were awaiting orders near the Persian Gulf late last month--at considerable cost to owners. But they said there was some increase in chartering--leasing of ships for specific voyages.

Compounding a decline in tanker activity are increasing costs for shipping companies resulting from the dangers caused by the crisis.

Crews want cash bonuses for sailing in the Gulf.

Insurance costs have increased as much as tenfold, though more often by three times, for ships in high-risk Gulf areas, according to Norwegian reports.

Jane Vidler of Lloyd’s Insurance in London said war insurance rates for ships have been raised three times since Aug. 2. But the highest premiums are still just one-tenth of the 7.5% of a ship’s value that some owners paid during the 1980-88 Iran-Iraq war.

Anxiety has pushed the paper value of Norwegian ships down by $1.3 billion, or 19%, since Aug. 1, according to Oslo’s stock exchange. “If this crisis goes on, we’ll be in trouble,” Glass said, “because the developed nations will enter a recession, and they will have a smaller demand for oil.”

He said ships that can carry either oil or dry cargo could enter the dry cargo market, causing problems in that segment. Also, expensive tankers ordered a few years ago are being delivered now and “those who ordered them are going to be in trouble,” Glass said.

Shippers expect some relief because other nations, including some OPEC members, are expected to replenish up to 90% of the 4 million barrels of Iraqi and Kuwaiti crude lost to the market.

Also, some tankers have won contracts to sail farther for alternate oil cargoes because Turkey closed a pipeline from Iraq.

Uncertain oil supplies could increase demand for coal cargoes from suppliers such as the United States and Australia. And higher crude prices would stimulate offshore oil exploration.