Amid escalating tensions between the United States and Iran, Washington is exploring an unconventional tool to stabilise global oil markets: government-backed insurance. Rising security risks in the Strait of Hormuz are directly affecting the price of crude on international markets, prompting the Trump administration to consider a programme aimed at reducing “war-risk” premiums, thereby easing pressure on shipowners and private insurers.
The Strait of Hormuz: A Strategic Bottleneck
The Strait of Hormuz, a narrow waterway lying between Iran and Oman, serves as a crucial artery for global energy supplies. Approximately 20 million barrels of oil and nearly one-fifth of the world’s liquefied natural gas pass through it daily. Recent conflicts and military posturing in the region have heightened perceived risks, triggering a surge in insurance premiums. These “war-risk” surcharges increase shipping costs and can, in turn, drive up oil prices worldwide.
Insurance Market Challenges
International insurers have responded to escalating risks by raising premiums or suspending coverage for vessels transiting the strait. Some ships are delaying passage or avoiding the route entirely.
The table below summarises the current positions of key insurers regarding the Strait of Hormuz:
| Insurance Provider | Hormuz Coverage Status | Remarks |
|---|---|---|
| Gard, Skuld, NorthStandard | War-risk coverage cancelled | No coverage in the region |
| London P&I Club | War-risk coverage cancelled | Inspections suspended |
| American Club | War-risk coverage cancelled | Passage limited |
| Lloyd’s of London | Coverage active | Total hull value insured $25 billion; market consulting US authorities |
Market Reactions and Implications
Global shipping giant Maersk has announced a suspension of all vessel transits through the strait, potentially slowing energy supply and impacting oil prices at the pump in the United States and internationally. Analyst Matt Smith cautioned, “Even with insurance support, the risk to crew and cargo remains. It offers limited reassurance if a direct attack occurs.”
Potential Outcomes of the Government-Backed Scheme
A U.S. state-backed insurance initiative would offer shipowners and insurers partial indemnity for losses stemming from hostile actions, effectively reducing their financial exposure. Yet, without concurrent military security and diplomatic stability in the region, uncertainty in oil markets is likely to persist.
Experts emphasise that the programme’s success will not solely depend on supply continuity but also on stabilising the insurance and shipping markets. If implemented effectively, it could temporarily alleviate pressure on international oil prices.
In this context, the Strait of Hormuz continues to function as a strategic chokepoint for global energy flows, where the intersection of insurance guarantees and military security will be pivotal in maintaining market stability.