The Strait of Hormuz is said to be the nerve of the global economy, when pressed, good countries start breathing heavily. At present something similar is being seen. Due to the Middle East crisis, Iran has completely closed the Strait of Hormuz. From where the supply of crude oil has stopped. The special thing is that more than 20 percent of global crude is supplied through this route. This is the reason why the price of crude oil has crossed $ 100 per barrel.
On the other hand, a different crisis is seen brewing behind the scenes, which is quite technical. The name of this crisis is the end of marine insurance. Many major insurance companies have suspended “war risk” coverage for the Persian Gulf until March 2026, leaving more than 150 tankers stranded and 20 percent of the world’s oil supply virtually at a standstill.
Without this essential “piece of paper”, the multi-million dollar ship is completely unable to move legally and financially, turning the geopolitical confrontation into a global logistics nightmare. Let us also tell you how marine insurance works? What is covered in marine insurance? Also, what kind of impact will be seen on crude oil prices due to lack of insurance cover?
How does marine insurance work?
Marine insurance is an essential “permission slip” for shipping that helps fulfill promises between shipowners, charterers, cargo owners, banks and ports. Without it, banks withhold letters of credit, ports refuse docking, and crews refuse to travel. In this way, it is like traveling without car insurance, but with international implications.
Most marine insurance is sold in the London market, where the Joint War Committee maintains a list of high-risk areas. As missiles began flying like Frisbee tons across the Middle East, the list grew to include the waters around Bahrain, Kuwait, Qatar and Oman.
This designation triggers a different pricing system. Ships entering the listed areas have to pay an additional war risk premium. For example, insurance on a $100 million ship for Gulf Transit increased from $250,000 to $375,000 per trip. Insurers like Guard and Skuld canceled cover from March 5 as reinsurers like India’s GIC Re withdrew capacity.
What are the parts of marine insurance?
Marine insurance is like an onion with many layers. This includes Hull & Machinery (ship), Cargo (goods), Protection & Indemnity/P&I (pollution, crew injuries, or third-party damage; 90 per cent covered through mutual international group clubs), and War Risk (topped with a quick cancellation clause for missiles/mines (typically 7 days but 72 hours for larger countries)).
Impact on oil shipments from the Strait of Hormuz
Tension in the Strait of Hormuz led to a marine insurance crisis, leaving more than 200 ships stranded in the high-risk Gulf zone. There is a reason for this also. Canceled War Risk Coverage cancels other policies such as Hull, Cargo and P&I. Daily traffic fell by more than 80 percent, from about 138 to less than 30. This led to record VLCC spot rates for the Middle East-to-China voyage, rising to over $424,000 per day (normally from $100,000), or more than 20 percent of the oil’s FOB. The value decreased due to shortage of ships and risk aversion.
Due to these reasons, the price of Brent crude has increased to more than $ 100 per barrel. Previous incidents include the Iran-Iraq tanker war of the 1980s, in which more than 500 attacks were carried out by escorts, and the Red Sea Houthi attacks in 2023, which increased premiums to 1 percent of the ship’s value, forcing Suez to change course and increase rates 10-fold, but no restrictions were imposed.
Impact of Hormuz Strait tension on global supply?
The strait handles 20-21 million barrels of oil per day, which is about 20-31 percent of the sea trade through Saudi Arabia, Iran, Iraq, UAE, Kuwait and Qatar, mostly to Asia. Due to recent problems, Brent crude has crossed $ 100 per barrel. Recently a statement has come from Iran that if the war is not stopped, the price of crude oil may cross $200 per barrel.