Lloyd's underwriters expect this week's hostage-taking in Saudi Arabia will lead to an upsurge in demand for political risk cover in that country.

Twenty-two people were killed after a shoot-out in the Saudi city of Khobar as security forces attempted to rescue around 50 foreigners who were being held in a residential resort.

Hardy political risk underwriter George Doughty said: "Historically, Saudi Arabia has been an area where the market has done business. Recent events will impact on demand for Saudi capacity."

Meanwhile, Doughty, who recently left Faraday, said Hardy was "most unlikely" to write political risk cover in Iraq.

"I don't have a large appetite for it. We will be treading cautiously," he said.

Political risk experts have advised contractors against entering Iraq at present.

Exclusive Analysis Middle East editor Zaineb Al-Assam said: "Our advice to contractors is stand back and see what happens as there is still a political and security vacuum that will not necessarily be filled by 30 June transition date."