Premiums surge 10 times! Middle East conflict cuts off shipping lanes, tanker transit insurance costs soar to $7.5 million

Israel and the United States launched airstrikes against Iran, triggering a conflict that is rapidly spreading through the global commodities supply chain. The Strait of Hormuz has become paralyzed, causing a sharp rise in energy trade costs, with shipping war insurance premiums soaring over 10 times, and the cost to insure a single oil tanker exceeding $7.5 million.

According to Reuters, Iran announced on Monday that it would open fire on any ships attempting to pass through the area. Since the conflict began, at least nine ships have been damaged in the region. As the world’s most critical energy transit chokepoint, the Strait of Hormuz handles over 20 million barrels of crude oil, condensate, and refined products daily, accounting for about one-fifth of global oil consumption. It is currently effectively under blockade.

The rapid increase in premiums is significantly raising operating costs for shipowners, traders, and energy companies. Analysts warn that if the situation remains unresolved, inflationary pressures will spread. U.S. President Trump has intervened, stating that multiple response measures are being explored, but markets remain skeptical about the implementation of concrete solutions.

Premiums surge over 10 times, single-ship costs exceed $7.5 million

The increase in insurance premiums is staggering. Reuters, citing brokerage Jefferies, reports that before the conflict, hull war risk rates were about 0.25%. For a tanker valued at $200-300 million, this translated to approximately $625,000 in premiums. Now, the rate has risen to 3%, meaning the same vessel’s hull war risk premium is around $7.5 million—a more than tenfold increase.

Aon, a global insurance broker and head of Asia maritime at Stephen Rudman, told Reuters that the “response from the hull war risk market is the fastest,” due to the potential for highly concentrated large losses if multiple ships in the same area are damaged simultaneously.

He added that if the situation escalates further, premiums could continue to rise, with additional surcharges in high-risk waters “spiking sharply and possibly remaining volatile in the short term.”

Angus Blayney, head of maritime at Gallagher, a major insurance broker, confirmed to Reuters that premiums have increased and vary daily depending on ship type and individual circumstances, but he did not disclose specific figures. He also stated that insurance coverage for such risks is still available.

Nearly 1,000 ships stranded, potential industry losses reach $1.75 billion

The tense situation near the strait is causing a large number of ships to be stranded. Reuters reports that as of last week, at least 200 vessels are anchored off the coasts of major Gulf oil-producing countries.

Sheila Cameron, CEO of Lloyd’s Market Association, stated in a release that about 1,000 ships are currently in the Persian Gulf and surrounding waters, roughly half of which are oil and gas tankers, with a total hull value exceeding $25 billion. “The vast majority are insured through London markets, and insurance coverage remains in effect.”

Jefferies analysts estimate that as of March 5, at least seven ships have been damaged, with potential industry losses reaching up to $1.75 billion. Meanwhile, credit rating agency DBRS warned in a report that reinsurers might raise loss triggers or reduce underwriting capacity, “leaving more risk to primary insurers and potentially putting pressure on their solvency.”

Supply chain rerouting raises inflation concerns

The actual blockade of the Strait of Hormuz is forcing global supply chains to seek alternative routes. DBRS notes that cargo will be rerouted via the Cape of Good Hope or overland, significantly increasing transportation time and costs. “Supply chains will face severe pressure.”

Data shows that since the conflict erupted, daily transit volumes of oil tankers and LNG ships have nearly halted. Vortexa, a data analytics firm, reports that last year, over 20 million barrels of oil and related products passed through the Strait daily. A prolonged blockage would have a substantial impact on global energy supplies.

The Insurance Information Institute’s chief economist and data scientist, Dr. Michel Léonard, summarized the current market predicament with a metaphor: “It’s like insuring a burning building.”

Trump’s involvement leaves implementation uncertain

In response to the shipping crisis, the Trump administration has begun seeking solutions. Trump stated on Tuesday that the U.S. Navy might escort oil tankers passing through the Strait of Hormuz and has ordered the U.S. International Development Finance Corporation (DFC) to provide political risk insurance and financial guarantees for maritime trade in the Gulf region.

He reportedly held talks with global broker Marsh on this issue. Lloyd’s Market Association also said it is actively communicating with the DFC and relevant stakeholders to find solutions.

However, market skepticism remains about whether these measures can be effectively implemented. They point out that it is unclear how the U.S. government’s intervention plans will operate and whether they will apply to all ships and cargoes regardless of nationality. In the absence of alternative routes, most shipowners are expected to renew their existing insurance at higher premiums and absorb the increased costs themselves.

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