After the US-Iran agreement, the war risk premium for the Strait of Hormuz was halved, dropping from 5% to 2%.

Over the past six days, war risk insurance premiums for shipping through the Strait of Hormuz have plummeted, reflecting a rapid contraction of the geopolitical risk premium after the US-Iran ceasefire agreement took effect.

On June 25, the British Financial Times reported that, according to insurance brokers, war risk premiums for ship hulls—after discounts—have dropped from about 5% of vessel value to 2%, falling by more than half in six days, thereby reducing insurance costs by hundreds of thousands of dollars per vessel. This change stems directly from last week's US-Iran ceasefire agreement. Trade intelligence firm Kpler data shows that since June 18, at least 172 ships have passed through the strait, with a clear rebound in shipping confidence.

The sharp drop in premiums is significant for both the shipping and commodity markets. Previously, insurance costs for some ultra-large tankers reached millions of dollars per week, and the high risk premium kept many ships stranded in the Persian Gulf for months. As premiums fall, the pressure on shipping costs eases and trade flows along relevant routes are gradually returning to normal. However, brokers noted that war cargo insurance premiums covering oil, grain, and other commodities have remained mostly steady since the agreement and have not yet followed hull insurance premiums downward.

Premiums Halved, Ships Return to the Strait

The Strait of Hormuz is one of the world’s most important energy transport corridors, connecting the Arabian Peninsula and Iran.

Before the US-Iran ceasefire agreement was signed, the threat of Iranian attacks loomed large and insurers kept raising premiums for vessels crossing the strait, which at their peak were about 20 times higher than pre-war levels. Some large oil tankers spent millions of dollars per week on insurance, causing many ships to opt to stay in the Persian Gulf rather than risk passage.

After the ceasefire agreement took effect, market sentiment shifted quickly. Insurance broker Marcus Baker of Marsh said: "Now vessels are trading normally, and insurance supply is abundant." Hull war risk premiums have fallen from around 5% to 2% (including discounts), saving individual vessels hundreds of thousands of dollars in insurance costs.

The report points out that the recovery in market confidence is evident not only in insurance pricing, but also in actual ship behavior. For several weeks before the ceasefire, most vessels crossing the strait switched off their AIS transponders—the system typically used to signal their location—to avoid being targeted for attack. Now, more ships are crossing with their AIS turned on, openly displaying their positions.

Container shipping giant MSC previously had several ships attacked by Iran, two of which were seized as hostages. Nevertheless, on June 20, the company sent its container ship MSC Qingdao through the Strait of Hormuz with its transponder on, an action market observers see as a symbolic sign of renewed confidence in shipping.

Unlike the significant decrease in hull war risk premiums, war cargo insurance covering oil, grain, and other commodities has remained flat since the agreement, and has not yet declined in tandem.

The report states that this divergence indicates structural differences in how the insurance market views geopolitical risks—hull insurance has responded more quickly and sensitively to the ceasefire, while cargo insurance has taken a more cautious, wait-and-see approach.

Additionally, the report says that despite the overall easing of tensions, shipping companies still exercise caution in decision making.

An executive from a shipping company explained that every decision to cross the strait hinges on three aspects: risk assessment by professional advisors, insurance coverage, and agreements with charterers. "You need a green light from all three before making a decision."

James Reason from insurance broker WTW also said:

"As long as the US-Iran agreement continues and no accidents occur, premiums will keep improving. But everyone remains cautious—there are still reports of naval mines along certain transit routes in the Strait of Hormuz."

Risk Warning and DisclaimerThe market is risky; invest with caution. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situation, or needs of any individual users. Users should consider whether any opinions, views, or conclusions herein are appropriate to their circumstances. Invest accordingly at your own responsibility.