Israel-Hamas war could lead to higher insurance premiums, shipping costs: GTRI

Trade between India and Israel was estimated at $12 billion in FY23. While India's merchandise exports stood at $8.4 billion, imports from Israel amounted to $2.3 billion.

Shipping costs and insurance premiums for Indian companies exporting to Israel are set to rise if the Israel-Hamas war continues, a trade think-tank said. “For merchandise exports of India, the war may lead to higher insurance premiums and shipping costs. India’s ECGC may charge higher risk premiums from Indian firms exporting to Israel," Global Trade Research Initiative said.

According to Ajay Srivastava, founder of GTRI, if ports are targeted at a later stage during the conflict, premiums will shoot up further.

Trade may be seriously impacted if operations at the three largest ports of Israel – Haifa, Ashdod, and Eilat – are disrupted. These ports handle shipments in agricultural products, chemicals, electronics, machinery and vehicles, GTRI said in a note.

Also Read: Israel-Palestine War: Indian stocks that may be affected by Middle East crisis

The Hamas militant group, which rules the Gaza Strip, launched a surprise and unprecedented attack by air, land and sea against Israel on October 7 morning. Israel retaliated with attacks against the Gaza Strip.

Additional costs

“Shipping companies have already started charging a premium for cargo meant for Turkey, Greece, Egypt and Libya. They have indicated that shipping costs may rise further if the conflict continues and they are forced to use alternative shipping routes around the African continent through Cape Town,” a senior executive from Adani Ports & SEZ told Moneycontrol.

“We are already four days into the war. I assess the insurance premiums to rise in the next five days, by mid-October, or a maximum of the first week of November, after which the premiums can rise by 10 percent every month,” a senior executive from Tata AIG General Insurance told Moneycontrol on condition of anonymity.

While insurance companies may choose to delay the increase in premiums, it won’t be for too long.

“The time to wait is not expendable. Shipments can only be delayed for a few days or a week. But after that, shipments will have to go with additional costs,” Prashant Vasisht, senior vice president and co-group head at ICRA, pointed out.

According to marine insurance officials, a rise in premiums is standard practice.

“The reason behind this is the heightened risk associated with shipping goods to regions experiencing geopolitical unrest. India's Export Credit Guarantee Corporation (ECGC) may consider charging higher risk premiums from Indian firms involved in exports to Israel. This is a standard practice when dealing with regions facing increased instability and risk,” said Christian Roeloffs, co-founder and CEO of Container xChange.

Such premiums, according to Roeloffs, are designed to protect Indian businesses from potential losses due to geopolitical uncertainties.

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Companies sending out shipments may also run into non-availability of coverage, said Sajja Praveen Chowdary, business unit head at Policy Bazaar.

“As seen from the past, whenever a war situation develops, insurers change underwriting guidelines and re-insurers also act on it. Sometimes, the risk is so huge that companies stop providing insurance cover altogether. A premium increase may not be able to justify the huge amount of risk in such a situation, leading to re-insurers and insurers not willing to accept the risk," he pointed out.

Key trade partner

Trade between India and Israel was estimated at $12 billion in FY23. While India's merchandise exports stood at $8.4 billion, imports from Israel amounted to $2.3 billion.

Key exports from India to Israel include diesel, cut and unpolished diamonds, and electronics and telecom components. Most of India’s merchandise trade with Israel is routed through Eilat port.

Also Read: A brief history of Israel-Palestine conflict

Both nations are negotiating a free trade agreement. Indian companies including Sun Pharmaceutical Industries, Tata Consultancy Services, Wipro, Tech Mahindra, State Bank of India, Larsen & Toubro, and Infosys have a presence in Israel.