The global marine insurance market effectively seized up around the Strait of Hormuz and surrounding waters on Monday, as insurers either refused to offer coverage for vessels transiting the region or demanded premiums so high as to make commercial shipping economically unviable. The effective withdrawal of affordable marine insurance from the most critical energy shipping lanes in the world is one of the less visible but most consequential dimensions of the current crisis.
Commercial shipping depends absolutely on marine insurance. Without it, shipowners cannot operate their vessels — they cannot absorb the risk of loss themselves, and their bankers and counterparties require insurance as a condition of doing business. When insurers withdraw from a risk zone or price coverage beyond the reach of commercial operators, shipping through that zone effectively stops, even if no formal blockade has been imposed.
The attacks on two commercial vessels in the Strait of Hormuz over the weekend — confirmed by maritime security agencies — were exactly the kind of incidents that cause marine insurers to reassess risk in a region. Combined with Iran’s reported warning to tankers, the deteriorating military situation, and the broader uncertainty about the conflict’s duration, the information available to insurers paints a picture of a risk environment that is essentially uninsurable at normal rates.
War risk premiums — the additional cost of insurance for vessels operating in conflict zones — were rising sharply for the Gulf region by Monday morning. For large tankers, the additional cost of war risk insurance can represent a significant fraction of the total cost of a voyage. When these premiums rise to very high levels, operators face a difficult calculation: the higher cost of the insurance may exceed the economic value of the voyage, particularly if spot freight rates are not yet fully reflecting the new risk environment.
The insurance market dynamics create a self-reinforcing mechanism for the Hormuz blockade. Insurers withdraw or price coverage beyond reach; commercial operators suspend transits; freight rates rise as supply of available shipping falls; eventually, if freight rates rise far enough, some operators may conclude that the economics justify the risk premium. But this process takes time, and in the interim, the practical effect is a blockade as complete as any formal military closure.
