In recent weeks, discussions about the Middle East situation have dominated both inboxes and industry conversations. As a professional closely tracking shipping dynamics, I would like to share a somewhat counterintuitive perspective:
Even if hostilities in the Strait of Hormuz were to cease tomorrow, the world’s most critical energy corridor is unlikely to resume normal operations in the short term.
The real barriers are not always visible on the battlefield—they are embedded in contractual clauses and actuarial models.
The Collapse of the Financial Safety Net: Reinsurance Withdrawal
To understand the current insurance crisis, one must recognize that this is not merely a matter of rising premiums—it is a structural breakdown of the entire risk transfer mechanism.
On March 1st, London-based reinsurers began notifying Protection & Indemnity (P&I) Clubs that they would no longer provide coverage for risks in the region. This marked the first domino to fall.
Reinsurers act as the “insurers of insurers,” absorbing and distributing large-scale risks. When they determine that risks in the Strait of Hormuz can no longer be quantified—or have moved beyond the realm of insurable risk—they withdraw without hesitation.
Without reinsurance backing, P&I Clubs have little choice but to follow suit and withdraw war risk coverage.
This is not a matter of risk aversion—it is the financial system making a collective judgment:
when risk shifts from “probable” to “ongoing,” it ceases to be insurance and becomes speculation.
Skyrocketing Premiums: The Economic Blockade
Insurers have left shipowners with a narrow and costly option: voyage-by-voyage war risk coverage, priced individually.
The cost is staggering.
According to market data and Lloyd’s estimates, for a VLCC valued at approximately USD 200 million:
Pre-conflict war risk premium: ~USD 500,000 (0.25%)
Current premium: USD 2 million to USD 6 million (1%–3%)
This represents a 4 to 12-fold increase—for a single transit.
Moreover, coverage must be renegotiated for each voyage, and insurers reserve the right to decline at any time.
The implication is clear:
Even if the Strait is physically open, it is effectively closed from an economic standpoint.
No rational shipowner is willing to pay millions per transit—or worse, sail uninsured through a high-risk zone.
According to Lloyd’s data, approximately 1,000 vessels are currently stranded in the Persian Gulf region, around half of which are oil and gas carriers. The total asset value exceeds USD 25 billion.
They are not idle by choice—they are immobilized by risk.
The U.S. Intervention—and Market Skepticism
Recognizing the severity of the situation, the U.S. government has attempted to stabilize the market.
On March 6th, the U.S. International Development Finance Corporation announced a USD 20 billion reinsurance support program aimed at facilitating vessel transit through the Strait.
However, the market remains unconvinced.
JPMorgan estimates that insurance demand for tankers operating in the region could exceed USD 300 billion. Against this backdrop, USD 20 billion is widely viewed as insufficient.
More critically, insurance is only part of the equation.
A single successful attack on a vessel would invalidate existing risk models, trigger another surge in premiums, and lead to even stricter underwriting conditions.
This is the essence of tail risk—low probability, but catastrophic impact.
A Critical Reminder: Contracts Are Now the Front Line
For those currently operating vessels or negotiating new charters, one point cannot be overstated:
The Strait of Hormuz has effectively become a live testing ground for contractual risk allocation.
Dubai-based law firm Fichte & Co has recently issued a warning urging industry participants to review their charter party agreements immediately.
Key questions include:
How are war risk clauses defined?
Do they explicitly include “blockade” or “closure” scenarios?
Who bears the burden of additional premiums?
If insurance is unavailable and a voyage cannot proceed, does this constitute force majeure?
These clauses were once treated as boilerplate language.
Today, every word may determine the allocation of multi-million-dollar liabilities.
