West Asia tensions: About marine insurance, the piece of paper that protects oil shipments via Strait of Hormuz

The Strait of Hormuz is often called the "world's jugular vein," and right now, that vein is under immense pressure. Following the recent escalation of hostilities—including coordinated strikes on Iranian infrastructure and retaliatory threats to close the waterway—global energy markets are on edge. But while the world watches the price of Brent crude, a quieter, more technical crisis is unfolding behind the scenes: the collapse of marine insurance.

As of March 2026, many major insurers have suspended "war risk" coverage for the Persian Gulf, leaving over 150 tankers stranded and effectively halting 20% of the world's oil supply. Without this crucial "piece of paper," a multi-million dollar vessel is legally and financially unable to sail, turning a geopolitical standoff into a global logistics nightmare.

How does marine insurance work? 

Marine insurance is a critical "permission slip" for shipping, enabling promises across shipowners, charterers, cargo owners, banks, and ports. Without this, banks withhold letters of credit, ports deny docking, and crews refuse to sail. Thus, it is akin to travelling without car insurance but with international ramifications. 

Most marine insurance is brokered in the London Market, where the Joint War Committee maintains a list of high-risk areas. The list expanded when missiles started flying around the Middle East like frisbies ton include waters around Bahrain, Kuwait, Qatar, and Oman. 

This designation kicks in a separate pricing regime. Ships that enter listed areas have to pay an additional war risk premium. For instance, insuring a $100 million vessel for a Gulf transit jumped from $250,000 to $375,000 per journey. Insurers such as Gard and Skuld cancelled cover from March 5 as reinsurers such as India's GIC Re withdrew capacity. 

What are the components of marine insurance? 

Marine insurance is multi-layered, just like an onion. It comprises hull and machinery (ship), cargo (goods), protection and indemnity/P&I (pollution, crew injuries, or third-party damages; 90 per cent covered via mutual International Group clubs), and war risks (tops it for missiles/mines with quick cancellation clauses (7 days normally but 72 hours for major countries). 

Effects on oil shipments from the Strait of Hormuz

Tensions across the Strait of Hormuz sparked a marine insurance crisis that stranded over 200 vessels in high-risk Gulf zones, as cancelled war risk coverage voided other policies like hull, cargo, and P&I if ships attempted to exit, leading to an over 80 per cent collapse in daily traffic from around 138 to under 30 vessels. This triggered record VLCC spot rates for Middle East Gulf-to-China voyages, surging to $424k/day (from a normal ~$100k) or over 20% of oil's FOB value due to vessel shortages and risk aversion. 

The fallout included severe port congestion at places like Ras Laffan and Basrah, global freight surges passed to refiners, and commodity inflation—pushing Brent crude past $82/bbl amid Asia's oil, LNG, and fertiliser crunch. Past parallels include the 1980s Iran-Iraq Tanker War with 500+ attacks managed via escorts, and 2023 Red Sea Houthi strikes that hiked premiums to 1% of ship value, forcing Suez reroutes and 10x rate spikes without total halts.

How do Strait of Hormuz tensions impact global oil flows? 

The Strait handles 20-21 million barrels per day of oil, around 20-31 per cent of seaborne trade from Saudi Arabia, Iran, Iraq, UAE, Kuwait, and Qatar, mostly to Asia. Due to the recent disruptions, Brent crude rose around 13 per cent to $82 per barrel amid fears of an energy supply crisis, potentially hitting over $100 per barrel on the back of a prolonged halt.