Insurance premiums surge tenfold! Middle East conflict cuts off shipping routes, oil tanker transit risk costs soar to $7.5 million

Israeli and US airstrikes against Iran are rapidly transmitting the resulting conflict through the global commodity supply chain. The Strait of Hormuz has become paralyzed, energy trade costs have soared dramatically, war risk insurance premiums for shipping have surged over tenfold, with the insurance cost for a single oil tanker crossing now exceeding $7.5 million.

According to Reuters, Iran announced on Monday that it will fire upon any vessel attempting to pass through, with at least 9 ships damaged in the region since the outbreak of conflict. The Strait of Hormuz, as the world's most critical energy transport chokepoint, sees over 20 million barrels of crude oil, condensate, and refined products pass through daily, accounting for about one-fifth of global oil consumption, and is currently effectively blockaded.

The rapid rise in premiums is massively increasing operating costs for shipowners, traders, and energy companies. Analysts warn that if the situation does not ease, inflationary pressures will spread. President Trump has intervened, saying that multiple measures are being explored, but the market remains skeptical about substantive solutions being implemented.

Premiums surge over tenfold, single ship cost exceeds $7.5 million

The increase in premiums this time is staggering. According to calculations by brokerage firm Jefferies cited by Reuters, prior to the outbreak, hull war risk insurance rates were about 0.25%. For an oil tanker worth $200 to $300 million, the corresponding premium was about $625,000; the new rate has risen to 3%, meaning the hull war risk insurance premium for the same ship is about $7.5 million, an increase of more than tenfold.

Stephen Rudman, Asia maritime business chief at global insurance broker Aon, told Reuters that "the hull war risk market responds most rapidly", because if several ships are damaged in the same region, it creates a highly concentrated exposure to huge losses.

He added that if the situation escalates further, rates could continue to rise, noting that surcharges for high-risk waters "are increasing sharply and may remain fluctuating in the short term."

Angus Blayney, Maritime Department Director at major insurance broker Gallagher, confirmed to Reuters that premiums have increased and vary daily depending on ship type and individual situation, but did not disclose specific numbers. He also said that such insurance is still available for purchase at present.

Nearly a thousand ships stranded, potential industry losses of up to $1.75 billion

Currently, tensions remain high near the strait, and large-scale ship stranding is forming. According to Reuters, as of last week, at least 200 ships were anchored waiting near major Gulf oil producing countries.

Sheila Cameron, CEO of the Lloyd's Market Association, stated in a press release that around 1,000 vessels remain in the Persian Gulf and surrounding waters, about half of them are oil and gas tankers, with a combined hull value of over $25 billion, "the vast majority insured in the London market, insurance currently remains valid."

Jefferies analysts estimated that as of their report on March 5, at least 7 ships have already been damaged, with potential industry losses as high as $1.75 billion. Credit rating agency Morningstar DBRS warned in a report that reinsurers may raise loss payout triggers or reduce underwriting capacity, "leaving more risk to primary insurers and potentially putting pressure on their solvency."

Supply chain forced to reroute, inflation risks emerge

The effective blockade of the Strait of Hormuz is forcing the global supply chain to look for alternative routes. Morningstar DBRS noted that cargo will have to detour via the Cape of Good Hope or switch to land routes, substantially increasing both shipping time and costs, "the supply chain will be under severe stress."

Analysis shows that since the conflict broke out, the daily crossing volume of oil tankers and LNG ships has nearly stopped. Data from analytics firm Vortexa indicate that last year, more than 20 million barrels of oil and related products passed through the Strait of Hormuz daily; if this passage is blocked long-term, the impact on global energy supply will be hard to underestimate.

Dr. Michel Léonard, chief economist and data scientist at the Insurance Information Institute, vividly described the current market predicament in one sentence: "It's like insuring a building that's already on fire."

Trump intervenes, uncertainty remains about implementation of solutions

Faced with the spreading shipping crisis, the Trump administration is seeking solutions. Trump stated Tuesday that the US Navy may provide escorts for oil tankers passing through the Strait of Hormuz, and has ordered the US International Development Finance Corporation (DFC) to provide political risk insurance and financial guarantees for maritime trade in the Gulf region.

Reportedly, Trump has also held talks with global insurance broker Marsh on the topic. Lloyd’s has said it is actively communicating with DFC and relevant stakeholders, seeking a solution path.

However, the market remains cautious about whether these measures can be effectively implemented. They point out it’s unclear how the US government’s intervention program will function, or if it applies to all nationalities of ships and cargo. In the absence of alternatives, most shipowners are expected to renew existing insurance at higher rates and absorb the rising costs themselves.

Risk Warnings and Disclaimer TermsMarkets are risky, and investment should be undertaken with caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of any individual user. Users should consider whether any opinions, views or conclusions in this article suit their specific circumstances. You are solely responsible for any investment decisions based on this article.