Saudi Arabia has initiated discussions with London-based insurance brokers to establish a government-supported war and political risk coverage scheme, designed to protect vessels navigating the region's waters, according to sources familiar with the matter. The move comes as escalating threats from Iran's conflict and heightened Houthi military actions against the kingdom have driven insurers to raise premiums on ships, infrastructure, and cargo such as oil and petrochemicals, while also tightening policy terms.

In certain instances, underwriters have refused to provide war risk coverage for vessels transiting key shipping chokepoints like the Red Sea. Following disruptions in the Strait of Hormuz, the Red Sea port of Yanbu has emerged as a critical hub for Saudi oil exports. The sources noted that the Saudi Ministry of Finance is exploring the creation of an insurance pool mechanism, which would enable ships and maritime cargo assets to secure coverage at reduced premium rates. For single insurance events such as vessel detentions or missile strikes, commercial payouts could reach up to 700 million Saudi riyals, equivalent to approximately 186 million US dollars.

Under the proposed framework, the first layer of coverage would be borne by insurance and reinsurance companies, while the state-owned Saudi Export-Import Bank would act as a backstop, offering several hundred million dollars in additional coverage for each insured party. In the version of the plan under discussion, Saudi Reinsurance and Riyadh Reinsurance would lead the formation of a reinsurance consortium, with international reinsurers also eligible to participate. The Saudi insurance regulatory authority, the Saudi Export-Import Bank, Saudi Reinsurance, and Riyadh Reinsurance have all declined requests for comment.

The sources added that negotiations over the project remain ongoing, covering details such as policy terms and the scale of risk the Saudi government would assume, though there is a possibility that talks may ultimately fail to yield an agreement. This development follows a recent announcement by former US President Donald Trump of a plan to subsidize insurance for ships transiting the strait, supported by Chubb and American International Group Inc (AIG). Media reports had indicated that this mechanism aimed to provide up to 40 billion US dollars in coverage, yet months after its launch, no policies have been issued. In recent months, due to attacks by Yemen's Houthi forces, underwriters have grown increasingly cautious about vessels with ties to Saudi Arabia, viewing them as high-risk targets similar to assets linked to Israel or the United States.