About a quarter of global oil supplies and a third of liquefied natural gas production move through the Strait of Hormuz, image credit: Reuters
Maritime War-Risk Premiums Set to Surge Amid Escalating Israel–Iran Tensions
Rising tensions between Israel and Iran are prompting renewed concern among maritime insurers, shipowners, and global trade operators as the specter of conflict looms over one of the world's most strategic shipping corridors. If the current situation continues to deteriorate, industry experts warn that war-risk insurance premiums for vessels operating in the Middle East, particularly in the Persian Gulf, Strait of Hormuz, and Red Sea, may rise sharply.
The UK Maritime Trade Operations (UKMTO) has issued advisories highlighting increased threats to commercial shipping in the region. Maritime security companies and insurance brokers have flagged a growing risk to vessels perceived to have Israeli affiliations. This follows military escalations and retaliatory strikes, prompting fears of further maritime disruption and potential vessel targeting.
Current war-risk premiums in high-risk zones range between 0.05% and 0.07% of a vessel's hull and machinery value for short-term voyages. Analysts warn that a serious military escalation could see these figures double or even triple, a scenario that would place significant financial strain on shipowners and charterers.
The economic impact of rising security-related costs extends beyond insurance. To mitigate risks, some operators are already considering rerouting away from the Strait of Hormuz and the Bab el-Mandeb, potentially opting for longer and more expensive voyages around the Horn of Africa. These detours increase fuel costs, voyage durations, and scheduling complexity, compounding pressure on the global supply chain.
The ramifications are particularly pronounced for oil and gas shipments. Iran has historically threatened to block the Strait of Hormuz in response to perceived aggression. With nearly 20% of global oil supplies passing through the strait, even the threat of disruption can lead to significant market volatility. In fact, oil prices have surged by more than 9% in recent days, with Brent and WTI benchmarks responding to the geopolitical uncertainty.
Shipowners are now re-evaluating route plans and risk exposure. Some, including tanker operators, have halted charters through the Gulf entirely. The chief executive of Frontline, one of the world’s largest tanker companies, recently indicated a reluctance to operate in the region until stability is restored.
Insurers, too, are closely monitoring developments. During previous Middle East conflicts, particularly during the Red Sea Houthi attacks, war-risk premiums reached levels of 0.75% to 2% of vessel value, and some underwriters even suspended coverage altogether. If a direct conflict between Israel and Iran were to erupt, similar patterns could emerge again.
For countries like India, which heavily rely on Persian Gulf routes for both exports and imports, especially energy—the implications are severe. Increased freight and insurance costs could cascade into domestic inflation, logistical delays, and higher end-consumer prices.
In summary, the maritime sector is entering a phase of heightened caution and economic vulnerability due to rising geopolitical risk in the Middle East. If tensions between Israel and Iran continue to escalate, global shipping may face a sharp rise in war-risk insurance costs, potentially reshaping freight economics, rerouting strategies, and maritime insurance practices in the months ahead.
