* Insurance market awaiting outcome of investigations

(Adds further comment, background)

By Jonathan Saul

LONDON, Aug 6 (Reuters) - A suspected militant strike on a
Japanese-owned tanker illustrates how vulnerable merchant ships
are to attack on the high seas with navies stretched fighting
Somali piracy, analysts and shipping sources said on Friday.

There have been growing concerns for maritime security after
the United Arab Emirates state news agency said earlier on
Friday that investigators had found traces of explosives on the
tanker damaged near the Strait of Hormuz last week.

A militant group called the Abdullah Azzam Brigades, which
is linked to al Qaeda, claimed responsibility. Security analysts
based in the Gulf, some sceptical of the group's claim, said
they believed the state news agency report.

While the 333-metre-long M.Star Japanese owner Mitsui O.S.K.
could not confirm details of the WAM report pending completion
of its own investigation, the latest development has raised
risks for ships.

"If it is proved to have been a terrorist case it's
everyone's worst fears confirmed," said Andrew Linington with
seafarers' union Nautilus International.

"Very little attention has been paid to waterborne attacks
where we believe vessels are still incredibly vulnerable as
pirates have demonstrated."

INTERTANKO, an association whose members own the majority of
the world's tanker fleet, said it was "disturbed" by what
increasingly appeared to be an external attack on the ship.

"Tanker owners naturally remain concerned at any development
that could put crew, ship and cargo at risk, and thereby also
threaten to interrupt the flow of free trade," it said.

Al Qaeda bombed the USS Cole warship in October 2000 when it
was docked in the southern Yemen port of Aden, killing 17 U.S.
sailors. Two years later an al Qaeda attack damaged a French
tanker in the Gulf of Aden.

Merchant ships have been increasingly plagued by Somali
gangs operating in the Gulf of Aden and the Indian Ocean.

"While if it is shown that the attack on the M. Star was the
result of a terrorist attack, there would certainly be a need
for greater vigilance and perhaps a review of security
protocols," said J.Peter Pham, a strategic adviser to U.S. and
European governments.

"If the attack on the M. Star is not a one-time event, but
others follow, it does place additional stress on both the
shipping industry and the navies of the world."

Security analysts said that such an insurgent attack on a
tanker based on al Qaeda's asymmetric warfare tactics could mean
that a different front was opening up.

"Even if this attack was relatively low-level and caused
limited damage, it clearly demonstrates the terrorist intent in
these waters and against the oil and shipping sectors," said
Metsa Rahimi, intelligence analyst with consultancy Janusian.
"The threat certainly cannot be underestimated."

Security sources say that there have been arrests of
suspected militants linked to plans to stage assaults on naval
ships or merchant vessels on the high seas.

"What we will likely see is shippers returning to a more
circumspect security posture with respect to allowing smaller
vessels to approach, whether that's establishing an exclusion
zone of 500 metres around every vessel or adopting non-lethal
counter measures such as long-range acoustic devices," said
Jonathan Wood, global issues analyst at Control Risks.

INSURANCE RISK

The narrow Strait of Hormuz is gateway to the oil-producing
Gulf and handles 40 percent of the world's seaborne oil. Al
Qaeda has threatened to attack shipping there in the past.

"An attack would cause greater concern and could have a
larger impact on exporting countries in the Gulf, many of which
have no export option except for shipping via the Strait of
Hormuz," Wood said.

Fears of an attack have raised worries over insurance risks.

"Underwriters are monitoring the situation but apart from
the obvious damage to the vessel, there is no definite
information on which to base a view," said Neil Roberts, a
senior technical executive with the Lloyd's Market Association.

Analysts say any designation of Hormuz as a high risk area
by the LMA's Joint War Committee would be a major development.

"Given the significance of the waterway no decision
regarding this would be taken lightly," the LMA's Roberts said.

But Control Risks' Wood said it was unlikely that al Qaeda
or affiliates could sustain a campaign involving attacking
merchant shipping. "The attacks are generally more difficult to
execute and the required capabilities are relatively scarce."

Maritime experts said it was difficult to blow up or sink a
tanker as they are built with watertight compartments able to
withstand damage as well as the modern fleet having double
hulls. Trying to attack a moving tanker was also difficult.

"Just placing explosives in the vicinity of a ship is almost
impossible to breach it unless you have significant quantities
-- you end up just denting it," said David Welch, managing
director of Ramora UK Ltd, an explosive ordinance disposal and
counter terrorism specialist.

"The double hull issue is a real nightmare from the
terrorist's perspective because all the energy is lost in the
transit between the outer and inner hull."