What are the implications of proposed insurance measures in the Strait of Hormuz?
The US has proposed to provide insurance risk guarantees aimed at stabilizing the Strait of Hormuz, a critical maritime route where roughly 20 percent of global oil flows occur. This initiative comes in response to rising tensions in the region, particularly involving Iran, which has threatened shipping in the area.
With more than half of the world’s major marine insurance associations planning to suspend war-risk coverage for vessels entering the Arabian Gulf, the insurance landscape is shifting dramatically. War-risk insurance premiums have surged by around 300 percent, now reaching about 1.5 percent of the value of each shipment, significantly increasing shipping costs.
The US Navy is considering escorting oil tankers through the Strait of Hormuz, a move that may provide some level of security for commercial shipping. However, experts like Abdulaziz Sager caution that the proposed guarantees would not be enough to ensure the safe passage of vessels, highlighting the complexities of the situation.
Military convoys, while potentially offering a layer of protection, can also slow shipping traffic and create logistical bottlenecks, further increasing costs. Saeed Salam notes that while naval escorts may offer psychological reassurance, they cannot fully counter asymmetric threats such as naval mines, suicide drones, or anti-ship missiles that Iran could deploy.
Iran retains several options to target vessels, including missiles, naval mines, drones, cyberattacks, and underwater strike capabilities. This multifaceted threat landscape complicates the effectiveness of any insurance measures proposed by the US.
The US strategy reflects an attempt to impose what Salam describes as forced stability in the Strait of Hormuz. However, the effectiveness of these measures remains uncertain, particularly as details on how the US International Development Finance Corporation (DFC) would structure insurance coverage remain unclear.
Moreover, any failure to militarily protect insured vessels could undermine the entire insurance framework and expose the US Treasury to massive compensation claims, further complicating the situation.
As the situation evolves, the scale of economic losses affecting trade volumes, oil flows, or shipping costs is difficult to estimate. Details remain unconfirmed, leaving stakeholders in the shipping industry and beyond to navigate an increasingly volatile environment.
