Tensions are escalating after the United States and Israel launched missile attacks on Iran and Tehran retaliated by attacking Israel and US bases across the Middle East. Amid the tensions, the Strait of Hormuz crisis is no longer just about missiles and naval manoeuvres. It is increasingly about marine insurance.
According to a Financial Times report, on 28th February, insurers informed shipowners that they would cancel policies. Furthermore, insurance companies have indicated price increases for vessels travelling through the Gulf and the Strait of Hormuz.
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That means that, even without a formal blockade, insurers are effectively tightening the choke point through pricing, cancellations and war risk clauses. Not to forget, around one fifth of the world’s crude oil flows through the Strait of Hormuz, along with a significant share of global LNG exports.
Yet the immediate brake on tanker traffic is not an Iranian warship physically stopping vessels. It is underwriters issuing cancellation notices and sharply raising premiums.
War risk clauses triggered before markets reopen
According to media reports, war risk insurers submitted 48 to 72 hour cancellation notices for ships operating in the Gulf and the Strait of Hormuz ahead of trading resuming on Monday. Firms including Skuld and NorthStandard moved swiftly after the latest strikes.
Container ships in the Strait of Hormuz as rising war risk premiums threaten global oil transit. Image: Dall-EThis means that existing cover can be withdrawn at short notice. Shipowners must then renegotiate protection at significantly higher rates or risk sailing uninsured through what underwriters are increasingly treating as a war zone.
Cargo war risk insurers, covering oil, grain and other commodities on board tankers, are also preparing to cancel and reprice policies.
Premiums rising to unviable levels
Until recently, insurance costs for vessels transiting the Gulf were about 0.25 per cent of a ship’s replacement value. For a 100 million dollar vessel, that meant roughly 250,000 dollars per voyage.
Brokers now estimate that premiums could rise by as much as 50 per cent in the near term, pushing the figure to 375,000 dollars per voyage, barring any direct attack on merchant shipping.
For ships calling at Israeli ports, where rates had hovered around 0.1 per cent, similar hikes are expected.
When war risk premiums climb rapidly, they can outpace freight margins. In extreme cases, the cost of insuring a voyage can approach or even exceed the profit on the cargo itself, rendering the trade commercially unviable.
A similar pattern has already played out in the Red Sea. After repeated attacks and threats by Yemen’s Houthi rebels near the Bab al Mandeb strait, war risk insurers sharply increased premiums for vessels transiting the area. In many cases, underwriters either imposed steep additional charges or required short notice approvals for each voyage. As a result, several major shipping lines chose to reroute around the Cape of Good Hope instead of crossing the Red Sea, adding weeks to transit times and significantly raising fuel and freight costs.
The leverage of fear over firepower
Iran may not possess the physical capacity to intercept and stop every tanker in the narrow waterway. However, if the threat environment is perceived as sufficiently severe, insurers will price that fear into their policies.
Underwriters are factoring in risks such as vessel boarding, seizure by Iranian forces or proxies, and the possibility of disruption orders. Some ships reportedly received radio warnings attributed to Iran’s Revolutionary Guard suggesting the strait was closed.
Even without an actual closure, such signals amplify perceived risk. Once insurers withdraw cover or multiply war risk premiums, shipowners face a stark choice. Either absorb sharply higher costs or reroute and delay cargoes.
On Saturday, at least three vessels reportedly turned away from the strait while owners reassessed the risk.
When insurance becomes the blockade
War risks are typically excluded from standard hull and protection and indemnity policies. Owners must purchase separate war risk and strikes cover. These policies often include rapid cancellation clauses of 48 or 72 hours.
If major markets, including those in London, which account for a substantial share of global marine war risk underwriting, tighten capacity or demand steep additional premiums, the effect can resemble a financial blockade.
In such a scenario, oil flows do not halt because every ship is physically stopped. They slow because the economics no longer work.
The Strait of Hormuz, therefore, is not only a military flashpoint. It is also an insurance flashpoint. And at this moment, the war risk premium may have more immediate control over tanker movements than any navy in the Gulf.