Insurance to sail over energy crisis

The sovereign guarantee-backed Bharat Maritime Insurance Pool can reduce insurance costs for ships — they have reached prohibitive levels

Things remain in a flux as far as the ongoing war in West Asia and its impact on maritime traffic, especially fuel supplies, via the Strait of Hormuz are concerned. Two key economic factors will take time to normalise even if the conflict were to end: production in oil and gas facilities in the region that have suffered damages and insurance premiums for shipping, which have spiked. India can’t do much to improve the former, but the Centre has rolled out a possible workaround vis-à-vis the latter.

Till India expands its own shipping fleet significantly in the medium- to long-term, this will largely be a mitigating measure rather than a policy targetted at delinking India’s maritime trade from the global shipping industry (AFP)

The sovereign guarantee-backed Bharat Maritime Insurance Pool can reduce insurance costs for ships — they have reached prohibitive levels apparently — bringing essential fuel supplies to India and, therefore, their landed costs. This, coupled with some diplomatic back channels with Iran, could ease the supply constraint for the Indian economy in the days to come. If the diplomatic outreach were to work, the actual fiscal outlay would likely be much smaller than the guaranteed amount of about ₹13,000 crore because damages would not have to be claimed. To be sure, for this scheme to work, the government will also have to convince private ship operators to avail of the option.

Till India expands its own shipping fleet significantly in the medium- to long-term, this will largely be a mitigating measure rather than a policy targeted at delinking India’s maritime trade from the global shipping industry. That said, it is difficult to find fault with the timing of the roll-out of the scheme; in fact, it is a smart move to mitigate the ongoing energy crisis.