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The cost of insuring a ship sailing through the Strait of Hormuz has soared 12-fold, even after Donald Trump vowed to backstop trade through the key oil chokepoint.
Shipowners have been quoted millions of dollars for cover to cross the Strait or sail in nearby high-risk waters, brokers said, as premiums jumped as high as 3 per cent of the cost of a ship on Wednesday, up from about 0.25 per cent before the war.
The US president said on Truth Social that the US Development Finance Corporation would provide insurance and guarantees “at a very reasonable price . . . for the Financial Security of ALL Maritime Trade, especially energy, traveling through the Gulf”.
London insurers were racing on Wednesday to understand how the proposal might work and whether it could help bring down prices. Several of the world’s largest insurance brokers said they were blindsided by Trump’s announcement.
“We’ve heard absolutely nothing more, other than that Truth Social statement,” said David Smith of specialist broker McGill, adding that insurers were unsure how broadly the support would apply, despite the pledge to insure “all” trade through the Gulf.
“Would it apply, for example, to a cargo of Chinese oil carried on a European tanker?” Smith said. “We don’t know.”
Other maritime experts questioned how much help could come from the DFC, whose main role is facilitating private investment in poorer countries, when freight costs and the risk of attack — rather than insurance availability — were the main worries for shipowners operating in the region.
“It might have been a way to take the edge off the oil price,” Ed Finley-Richardson, a shipping investor and founder of Contango Research, said of the DFC announcement, “but on the face of it I don’t see how it changes anything. We already have insurance.”
Brent crude dipped slightly on Trump’s announcement but remains 12 per cent higher than the start of the war at about $81 a barrel.
The cost of insuring ships travelling near the Middle East has soared since insurers over the weekend began notifying clients that they were cancelling their war-risk insurance policies.
Some insurers had cancelled policies in order to reinstate cover at higher prices more reflective of current risk levels, brokers said, but others had exited the market and many were refusing to provide cover through the Strait, where traffic has in recent days ground to a halt.
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At least seven tankers have been struck in the Strait and surrounding waters since Sunday, and ships have reported receiving radio messages, apparently from the Islamic Revolutionary Guard Corps, telling them to stay out of the waterway.
Typical prices in the high-risk region now ranged from 1 to 1.5 per cent of the cost of a ship, while ships linked to the US, UK and Israel had been quoted prices as much as triple those rates, Marsh broker Dylan Mortimer told the FT.
Trump added on Truth Social that “If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible.”
Naval escorts would help reduce the threat for the ships being protected, marine security experts said, but providing protection for all tankers operating in areas currently threatened by Iran could be unrealistic as it would require a very high number of warships and other military assets.
US naval ships would also be at risk if they move into the Strait before Tehran’s navy is significantly degraded, said one maritime security adviser, who asked not to be named. “Their fear is that if they put a warship into that area, every single Iranian missile will be fired at it. They will be overwhelmed entirely.”