London insurers withdraw 'war risk' policy for Venezuela

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, June 18 -- London’s marine insurance market, spurred by President Hugo Chavez’s recent confiscation of 300 service vessels and more than 70 gas processing units, has withdrawn maritime war-risk policy coverage for Venezuela.

The removal of war-risk cover means vessel operators in the country may no longer be able to insure against asset confiscation, a move that will affect all water-borne vessels including tankers and containerships.

“This is a result of an accumulation of developments in Venezuela,” said Neil Roberts, secretary to the Marine Committee of the Lloyd’s Market Association.

“Banks, agriculture, ports, and offshore energy have all been targeted—it is a likely proposition that [Chavez] will continue to expropriate commercial assets,” said Roberts.

“Ultimately, this is an advisory note, and it is up to underwriters to decide how they wish to act on this decision,” Roberts told shipping daily Lloyd’s List.

The decision by the London insurers covers all of Venezuela, including all of its offshore installations up to 200 nautical miles offshore as part of the country’s maritime Exclusive Economic Zone.

Although London underwriters are the only ones to have removed the war-risk cover so far, industry observers expect that their lead will influence other insurance markets around the world.

In May, the Chavez regime enacted a law that reserves to Venezuela certain assets and services related to hydrocarbon primary activities.

Under the law, reserved activities are to be performed by state-owned Petroleos de Venezuela SA (PDVSA) or its affiliates or through mixed companies under the control of PDVSA or its affiliates (OGJ Online, June 5, 2009).

In March, Chavez, using the need for drug interdiction as his justification, also ordered his country's navy to seize seaports in Venezuelan states having major petroleum-exporting installations.

“It is a matter of national security,” Chavez said in announcing his takeover of the ports of Maracaibo in oil-rich Zulia state and Puerto Cabello in Carabobo state. He also referred to a plan to take control of the seaport in the state of Nueva Esparta (OGJ Online, Mar. 17, 2009).

US oil service company Exterran Holdings Inc., in a regulatory filing June 16, has since said it may seek compensation from Caracas for its expropriated assets, valued at $400 million, while US operator Tidewater Inc. also said in mid-June it would seek compensation for its 11 expropriated vessels.