Middle East conflict, supply chain disruption and the insurance risks businesses need to consider

Key takeaways

The ongoing instability in the Middle East continues to put pressure on global supply chains, forcing businesses, carriers and logistics providers to adapt quickly to changing trade routes and emerging risk exposures.

While much of the focus understandably centres on operational challenges and rising transportation costs, the insurance implications of these route changes are often overlooked. Businesses may assume their existing freight liability or cargo insurance arrangements will automatically respond to evolving circumstances, but that is not always the case.

As supply chains adapt, it is important for organisations to understand how changing routes, sanctions considerations and war-related exposures could affect their insurance cover.

Supply Chain Disruption and Alternative Routing

The disruption affecting Red Sea transit has resulted in many vessel-operating carriers avoiding the Suez Canal, with cargo increasingly being routed around the Cape of Good Hope. In some cases, shippers have also explored rail alternatives such as the Trans-Siberian Railway to maintain supply chain continuity.

Whilst these alternative routes can help keep goods moving, they often come with significantly longer transit times, increased costs and additional operational complexity.

From an insurance perspective, businesses should be aware that delays alone are generally not covered under standard freight liability or cargo insurance policies. Unless there has been physical loss or damage to the cargo, insurers will typically not respond to consequential financial losses arising from delayed deliveries.

This can create a significant gap between a business’s commercial exposure and its insurance protection, particularly where time-sensitive goods, contractual penalties or production schedules are involved.

Freight Forwarders: Sanctions and Territorial Considerations

For freight forwarders, changing transportation routes can create a range of compliance and insurance challenges.

Many freight liability policies contain sanctions clauses and may exclude certain territories altogether. Where cargo movements involve the Trans-Siberian Railway or other routes passing through higher-risk jurisdictions, businesses should carefully consider:

• Whether Russia or any transit territory is specifically excluded under their insurance policy.
• Whether any carriers, subcontractors or other contracted parties are subject to international sanctions.
• Whether they are dealing directly with Russian service providers or only through established forwarding partners.
• Whether insurers should be notified of changes to routing arrangements.

Our recommendation is that freight forwarders clearly disclose any material route changes to insurers, particularly where cargo is moving through territories that may create additional exposure or regulatory scrutiny.

These considerations are important because insurance cover could be impacted if sanctioned entities become involved in the supply chain or if cargo passes through territories excluded by the policy.

War Exposures Under Freight Liability Policies

One area that is frequently misunderstood is the treatment of war risks within freight liability insurance.

Many freight liability policies do not provide cover for losses arising directly or indirectly from war, armed conflict, hostilities or military activity.

If cargo is lost or damaged as a direct result of these events, there may be little or no insurance response under a freight forwarder’s liability policy.

This creates a potentially significant exposure for logistics providers operating in an increasingly volatile geopolitical environment.

Freight forwarders should therefore review both their insurance arrangements and their trading conditions to ensure they are not assuming liabilities that may be effectively uninsurable. In practice, this may involve clearly communicating to customers that liabilities arising from war, warlike operations or related consequences are excluded from their contractual responsibility.

Understanding where liability begins and ends is critical when traditional insurance protections may not apply.

Cargo Insurance Considerations

Cargo insurance policies present many of the same challenges.

Alongside sanctions restrictions and territorial limitations, a growing number of insurers reference risk assessment tools such as the Global Cargo Watchlist when evaluating exposures. Depending on policy wording, cover may be restricted, subject to additional terms or excluded entirely where goods transit through areas classified as High, Very High or Severe risk.

Businesses should therefore consider:

• Whether alternative routing creates exposure to excluded territories.
• Whether insurers have been informed of any route changes.
• The nature, value and sensitivity of the goods being transported.
• The volume of shipments moving through higher-risk regions.
• Whether any additional premiums, conditions or security requirements may apply.

What was considered a routine shipment six months ago may now involve a very different risk profile, particularly where geopolitical tensions continue to evolve.

The Importance of Reviewing Coverage

Although there are periodic reports suggesting easing tensions and improving stability in parts of the region, the situation remains fluid. Conditions can change rapidly, and risk ratings or underwriting appetites may be amended during the policy period.

Businesses that rely on international supply chains should take the opportunity to review:

• Territorial limitations within their policies.
• Sanctions-related restrictions and compliance requirements.
• War and terrorism exclusions.
• Notification obligations relating to changes in routing.
• Contractual liabilities assumed with customers and suppliers.

Regular dialogue between businesses, brokers and insurers can help ensure that insurance arrangements remain aligned with operational realities.

Final Thoughts

Global supply chains have proven remarkably resilient, adapting quickly to significant disruption across key trade corridors. However, operational resilience should be matched by a thorough understanding of the insurance implications that accompany changing routes and emerging geopolitical risks.

The key message is simple: businesses should not assume that existing freight liability and cargo insurance policies will automatically respond to these new exposures.

A proactive review of coverage, contractual arrangements and insurer notification requirements can help identify potential gaps before they become costly problems.

In an environment where supply chains continue to evolve, understanding the insurance risks is no longer just a risk management exercise—it’s an essential part of protecting business continuity.

If you need guidance on freight liability, cargo insurance or the potential impact of changing supply chain risks on your insurance arrangements, speak to the Marine & Logistics team or call us on 01628 532 613