The closure of the Strait of Hormuz due to the ongoing conflict between the United States, Israel, and Iran has resulted in a sharp increase in marine insurance costs, significantly affecting global shipping. According to a report by the French Press Agency, shipping traffic in the strait has dropped to unprecedented levels, declining by 95% from March 1 to March 26 compared to pre-conflict levels.
Data from the International Union of Marine Insurance shows that insurance companies have reassessed coverage for "war risks" for vessels crossing the area, issuing temporary termination notices for contracts in preparation for reactivation under new terms and prices. Although insurance is available for shipowners, the heightened security risks have led many captains to avoid passing through the strait, as confirmed by the Lloyd's Market Association.
Details of the Incident
Reports indicate that premiums for war risk insurance have surged, rising from less than 1% of the vessel's value before the conflict to currently ranging between 3.5% and 10%. This means that costs could reach tens of millions of dollars for a single crossing. For instance, the value of modern liquefied natural gas (LNG) carriers can reach $250 million, effectively doubling the insurance cost, especially when factoring in the value of the cargo that may equal the vessel's worth.
In March, the London Marine Insurance Market expanded its list of "listed" areas in the Gulf, allowing insurers to quickly adjust prices according to evolving risks. However, shipping traffic has sharply declined, with Kepler reporting that the number of vessels crossing the strait has significantly decreased, with only a limited number of ships passing through.
Background & Context
The Strait of Hormuz is considered one of the most important maritime corridors in the world, through which approximately 20% of global crude oil supplies pass, along with significant quantities of liquefied natural gas. Any disruption in this vital corridor has a direct impact on global trade and energy. Since the onset of the conflict, the UK Maritime Trade Operations has recorded 24 incidents targeting commercial vessels, including 11 oil tankers, in the Gulf, the Strait of Hormuz, and the Gulf of Oman.
In an effort to contain the crisis, U.S. Treasury Secretary Scott Pison announced an American security initiative aimed at encouraging passage through the strait, supported by a plan proposed by former President Donald Trump that includes providing naval escorts for vessels. However, this initiative faces international hesitation amid the ongoing conflict, complicating the situation further.
Impact & Consequences
Experts assert that the success of any secure passage program could lead to a rapid decrease in insurance prices and a partial restoration of shipping traffic. However, the increasing security risks remain a major barrier to restoring confidence in navigation through the strait. Under these circumstances, insurance costs are expected to continue rising, negatively impacting global trade.
Concerns are growing that the continued closure of the strait could exacerbate the global energy crisis, as many countries rely on oil and gas supplies from this region. Additionally, any further escalation in the conflict could worsen security conditions, complicating efforts to secure navigation.
Regional Significance
The closure of the Strait of Hormuz poses a direct threat to Arab countries, particularly those dependent on oil and gas exports. The increase in insurance costs may lead to higher energy prices, affecting Arab economies and increasing economic pressures on citizens. Furthermore, the decline in shipping traffic could impact regional and international trade, negatively reflecting on economic growth in the region.
In conclusion, the closure of the Strait of Hormuz remains a critical issue requiring international coordination and joint efforts to ensure secure navigation and protect global trade. As the conflict continues, hope remains for restoring stability in the region and achieving maritime security.