More than one week into the U.S.-Israel war on Iran, traffic through the Strait of Hormuz has trickled away to virtually nothing. Oil prices and global anxieties have both spiked, which in turn have prompted U.S. President Donald Trump to suggest the U.S. Navy might escort merchant vessels through the crucial strait. That’s a risky proposition in itself, but there’s also no concrete plan on the table yet, despite Trump’s efforts on Monday to calm markets. Until then—whenever and however that happens—the violence will continue and the turbulence in global oil and commodities markets with it.
In the first days of the war, many shipping watchers, including yours truly, focused on the insurance rates for ships needing to pass through the perilous Strait of Hormuz, when insurers appeared to be covering all deals. Now, a slightly different picture is beginning to emerge. Some insurancemost especially war insurance, is available, except for ships linked to the United States and Israel. Unsurprisingly, maritime war insurers are providing the most comprehensive coverage.
More than one week into the U.S.-Israel war on Iran, traffic through the Strait of Hormuz has trickled away to virtually nothing. Oil prices and global anxieties have both spiked, which in turn have prompted U.S. President Donald Trump to suggest the U.S. Navy might escort merchant vessels through the crucial strait. That’s a risky proposition in itself, but there’s also no concrete plan on the table yet, despite Trump’s efforts on Monday to calm markets. Until then—whenever and however that happens—the violence will continue and the turbulence in global oil and commodities markets with it.
In the first days of the war, many shipping watchers, including yours truly, focused on the insurance rates for ships needing to pass through the perilous Strait of Hormuz, when insurers appeared to be covering all deals. Now, a slightly different picture is beginning to emerge. Some insurancemost especially war insurance, is available, except for ships linked to the United States and Israel. Unsurprisingly, maritime war insurers are providing the most comprehensive coverage.
Even so, the risks to ships and crews alike are so severe that only the fewest of ships are attempting the voyage. On March 6, GCaptain reported that just 44 to 45 ships had transited since the beginning of the month—a 90 percent decrease in normal traffic, according Lloyd’s List Intelligence, a shipping intelligence service. At midday local time on Sunday, only a handful of ships were passing through the strait. So far, the ships have primarily been part of the Iranian shadow fleet, although vessels operated by Dynacom, a Greek firm led by billionaire shipowner George Prokopiou, were also risking the journey. Waiting inside the Gulf is hardly safe either: Ships have been hit there, as have a Qatari liquefied natural gas plant and an oil rig off the Saudi coast.
Nearly a quarter of the world’s oil and gas , but far more than that is at stake. Aluminum is processed at smelters in the Gulf, and on March 6, aluminum prices were up by more than 27 percent year-on-year. It’s also a potential crisis for fertilizer ingredients20-30 percent of which ordinarily pass through the strait on their way from Gulf countries to global markets.
If shipments of nitrogen-based fertilizers “fail to arrive on time, farmers face difficult choices such as how to pay sharply higher prices, reduce application rates, or alter crop mixes. Because of how crops respond, even modest reductions in nitrogen use can produce disproportionately large declines in yield. That could translate into millions of tonnes of lost crops. The consequences would ripple through global supply chains into feed markets, livestock production, biofuels and ultimately retail food prices,” Nima Shokri and Salome M.S. Shokri-Kuehni, both at the United Nations University, pointed out recently in the Conversation. That’s precisely what Russia’s damage has done to Ukrainian grain supply.
Abstract risks on paper can leave ships and people alike bloody wrecks in reality. On March 6, Seatrade Maritime Newsan industry publication, listed at least 10 ships hit by drones or missiles since the war began. At least three seafarers and two port workers have been killed. During the Tanker War between Iran and Iraq in the 1980s, 451 ships were attacked—most by Iraq—and more than 300 seafarers were killed, injured, or reported missing. Most of the world didn’t pay much attention to those losses, perhaps because many seafarers already came from poorer nations and the sea is, by definition, far away from most of us.
Today, the world has better access to information—and stronger duty-of-care rules. But despite the improvements, which also include amenities such as onboard Wi-Fi, the seafarers now in harm’s way in the Gulf and the Strait of Hormuz, and everywhere on the world’s oceans, are primarily from lower-income economies. More than 13 percent hail from the Philippines, the top country of origin; more than 10 percent are from Russia and nearly 6 percent from India. That desperation may cause them to accept the risk of navigating the strait; insurers and shipowners, on the other end of the wealth spectrum, may be less willing.
The realities of risk are the reason why Trump’s proposal, originally floated on Truth Social, of insurance “at a very reasonable price … for the Financial Security of ALL Maritime Trade, especially Energy, traveling through the Gulf” has triggered minimal reaction.
The proposal, which was formalized by the U.S. International Development Finance Corp. (DFC) on March 6, “will offer a level of security no other policy can provide,” DFC CEO Ben Black said in a statement announcing the reinsurance policy. The statement also provided the criteria under which it will be offered: It will insure losses up to around $20 billion, apply only to vessels that “meet the criteria,” focus on hull and machinery as well as cargo, and will be available via “preferred American insurance partners.”
The shipping industry’s enthusiasm, though, is limited: The terms have not been fully established, and it would require shipowners to quickly shift to U.S. insurers. The DFC said it would coordinate with U.S. Central Command, and Trump said on Truth Social that the U.S. Navy could escort ships through the strait, but it’s unclear which ships might be escorted: the ships potentially switching to the DFC’s partners, even if they’re not flagged or owned in the United States? Ships flagged or owned in the United States or carrying cargo for the United States? And if escorting comes to pass, what would it look like? One U.S. Navy ship per merchant vessel? One per five or 10 merchant vessels? What if a merchant vessel being escorted gets attacked anyway? Are U.S. Navy ships capable of fending off every suicide drone or stray missile?
In response to the proposed U.S. Navy escort, Iran’s Islamic Revolutionary Guard Corps (IRGC)—which operates its own navy, separate from the Iranian navy, and focuses on the Strait of Hormuz—was defiant. “We are waiting for their presence,” IRGC spokesperson Ali Mohammad Naini told Iran’s Fars News Agency and took the opportunity to remind the United States of the Bridgetona supertanker damaged by IRGC mines as it was being escorted through the Gulf by the U.S. Navy during the Tanker War.
Meanwhile, days’ worth of oil, gas, aluminum, fertilizer, and other commodities aren’t reaching their destinations, and ships aren’t picking up more cargo. China, which buys nearly all Iran’s oil, has reserves of between three to six months and has just halted diesel and gasoline exports. Buyers of Gulf energy are already feeling the pain.
Then there are the Gulf states. Around 80-90 percent of all barley, corn, and wheat the United Arab Emirates consumes arrives via the Strait of Hormuz, the trade intelligence firm Kpler reports; Saudi Arabia, too, depends on the strait for much of its imports, not least because the Red Sea, on its other coast, has seen Western shipping lines divert away for the past couple of years. That’s not mentioning all the other commodities that reach the Gulf states via the Strait of Hormuz. The UAE has been investing in strategic food reserves that are expected to last four to six months.
But burning through strategic reserves is a last, and partial, resort. So perilous is the situation that Qatar’s energy minister has warnedin a recent interview with the Financial Timesthat the war in Iran could “bring down the economies of the world.” The war, Saad al-Kaabi predicted, would force all Gulf energy exporters to shut down production “within days” and drive oil to $150 a barrel.
If Trump decides that Iran has been defeated within the next few days, the disruption in the Strait of Hormuz could be managed. If the war lasts for weeks, or even months, all bets are off.
