Strait of Hormuz transits are still insurable for vessels, albeit at sharply elevated costs. According to market sources, Lloyd's of London syndicates that form the core of the marine war risk market, along with IUMI-member reinsurers and P&I clubs, are selectively maintaining capacity during a period of steep premium increases. For VLCC, LNGC, and LR2 tankers, the combined K&R, H&M, and war risk premiums are inflating WS tariffs in the spot market. The choice of FOB/CIF contract templates by BCOs has emerged as a decisive factor in this high-premium environment.
Coverage costs have spiked to roughly 5% of a vessel's value—approximately five times the levels seen in the early days of the Iran conflict and far exceeding the modest fractions of a percentage point typical during periods of relative calm. Sources requesting anonymity share that insuring a $100 million oil tanker now costs approximately $5 million. Even as tariffs remain elevated, the existence of available coverage for the handful of vessels willing to transit this vital waterway—which normally carries one-fifth of global oil and liquefied natural gas shipments—signals that some insurance capacity persists. The critical question is whether owners remain willing to make the crossing given the security risks.
When asked why the U.S. did not immediately reopen the Strait of Hormuz after destroying Iran's mine-laying vessels, President Trump stated on March 16 that shipowners need to be willing to transit the waterway for normal operations to resume. Details on plans for the U.S. International Development Finance Corporation to help insure tankers remain unclear. The U.S. has announced a $20 billion reinsurance program to help revive traffic across Hormuz. Insurers have shown interest in partnering with the DFC to provide reinsurance, an agency official noted last week. Trump's call for allies to help secure the waterway has been met with reluctance.
Most insurance tariffs to date are being priced for vessels connected to China, India, or Pakistan, according to one source. Insurers in the London market insist that coverage remains available for Middle East vessels and that this is not a factor preventing entry and exit trade with the region. The U.K. Maritime Trade Operations Center estimates that at least 20 vessels have been involved in security incidents within and around the Persian Gulf since March 1. The most recent occurred on March 12, when a container ship was struck, causing a fire. From a supply chain perspective, these security incidents have prompted an expansion of the Joint War Committee (JWC) high-risk area definition and require active deployment of BIMCO War Risks clauses in all charter party agreements. Ultimately, the surge in Hormuz insurance costs underscores the systemic risk posed by a single chokepoint in the global energy supply chain.
Key Points:
1. Hormuz insurance premium climbs to approximately 5% of vessel value.
2. A $100 million tanker now incurs roughly $5 million in premiums.
3. Most pricing is being cut for vessels linked to China, India, and Pakistan.
4. UKMTO has reported 20 security incidents since March 1, with the latest on March 12 involving a container ship.
5. The DFC's $20 billion reinsurance program is attracting insurer interest.
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