Cancelled shipping insurance leaves Strait of Hormuz blocked
Oil and gas shipments through the Strait of Hormuz have stopped. Risk from war is compounded by terminated insurance coverage for shipping through the Persian Gulf.
Shipping traffic through the Strait of Hormuz remains almost entirely blocked, plunging oil and gas markets into chaos.
U.S. and Israeli bombing campaigns continue against Iran, and the Iranian Revolutionary Guard Corps (IRGC) stated on Monday that it would fire upon any ship travelling through the Strait.
Not only do ships face physical risks of war, but the cancellation of maritime insurance for tankers passing through the Strait of Hormuz has made it all but impossible for shipping companies to move cargo through the region.
On Monday, global shipping giant Maersk said it would suspend shipments to and from countries located in the Persian Gulf, and that it would hike rates for cargo moving to and from the Middle East.
“Freight levels for these shipments will be updated to reflect the increased operational costs arising from the closure of Strait of Hormuz,” Maersk said.
MSC, another shipping conglomerate, said it would unload all cargo destined for the Middle East at the nearest port, and would pass on costs to shipping customers.
A small trickle of ships are passing through with their transponders switched off, but shipping traffic is down more than 80 percent. Only one crude tanker has passed through and no LNG ships, according to Lloyd’s List.
A backlog of more than 150 tankers is idling outside the Strait of Hormuz, along with a smaller number of ships trapped inside the Gulf.
Crude oil and LNG prices are skyrocketing, forcing up gas prices at key trading hubs in Europe and Asia.
Tanker rates for very large crude carriers (VLCCs) travelling from the Middle East to China shot up more than 90 percent to $432,000 per day, according to CNBC. Shipping companies are imposing risk surcharges on cargoes, from $1,500 per container.
Coverage for war risk will expire at midnight on March 5th, which will require shipowners to renegotiate insurance rates at sky-high levels, Lloyd’s said.
The impacts could reverberate around the world, even for maritime trade outside of the Persian Gulf. On the Red Sea, tanker rates more than doubled.
LNG tanker rates in the Atlantic Basin have soared to $200,000 per day, about three times higher than levels seen as recently as Monday, according to Bloomberg.
The CEO of DUCAT Maritime, a Cyprus-based logistics firm, told CNBC that the company was trying to ship rice around the Cape of Good Hope to West Africa, but lost out on the ship because someone paid a 50 percent premium for the vessel to move coal in Southeast Asia.
“So, the consequences are far and wide, and this is potentially a double whammy. If we’re looking at the Hormuz closing and the Suez effectively being tampered with by the Houthis, this could be quite significant — much like what we saw during the Covid era and the attacks that were happening there,” Adrian Beciri, CEO of DUCAT Maritime, told CNBC.
The havoc in maritime shipping has caught the Trump administration flat-footed. The Wall Street Journal reported that the U.S. government’s shifting justifications for the war, unclear strategic objectives, and very little “day after” planning, now has the administration “improvising.” The bombing campaign continues, but U.S. officials are scrambling to contain the fallout and to formulate a coherent strategy.
On Tuesday, Trump announced that the U.S. government, through the International Development Finance Corporation, would provide insurance directly to shipping firms, in an attempt to break the logjam.
Some experts questioned the viability of such a plan.
“The IDFC lacks the authority and the financial resources to cover the ships at the Strait of Hormuz. Political insurance is very expensive for the insurer,” William Henagan, a research fellow at the Council of Foreign Relations, told the WSJ.
Others saw the immediate crisis piling problems onto a sector that is already under pressure.
“This is further evidence that insurer appetite for LNG exposure is narrowing amid increasing geopolitical and ESG concerns,” said Ben Murphy, insurance engagement and campaigns manager at ShareAction, a London-based shareholder advocacy group.
“Over the past two years, major European insurers Generali and Munich Re have made some moves away from underwriting LNG expansion projects, which suggests this isn’t an isolated case — it’s a sign of more trouble to come for a volatile sector.”
Trump also suggested the military could provide an escort to oil and gas tankers passing through the Strait of Hormuz. “If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible,” Trump said on Truth Social. “No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD.”
That came just hours after U.S. naval officials poured cold water on that concept. Lloyd’s List reported that the U.S. Navy told shipping industry officials that American naval protection “is not an immediate option” because there “is no availability of naval escorts and no timeline for when such arrangements will be available, if at all.”
Unnamed U.S. naval officials said there was “no chance” of a military escort happening anytime soon.
(Writing by Nick Cunningham; editing by Sophie Davies)