War risk insurance returns to Strait of Hormuz – at a price

Published Sun, Mar 15, 2026 · 10:10 AM

A TENTATIVE solution for war risk insurance has emerged for vessels transiting the Strait of Hormuz. But with daily charter rates for oil supertankers quadrupling within a week to nearly US$800,000, it remains unclear when normal shipping traffic will resume through the critical waterway.

International insurers have begun signing new war risk contracts for ships entering the Persian Gulf and the Strait of Hormuz at a rate of 1 per cent of a vessel’s hull replacement value, renewable every seven days, Caixin has learned from several shipping companies. Before the recent conflict, the rate was 0.25 per cent.

The surge in costs follows a sudden military strike by the US and Israel against Iran, which prompted major insurance consortiums to void existing war risk policies and led a key industry committee to sharply expand its list of waters considered a war zone.

The spike in insurance and freight rates reflects the immense logistical and financial challenges facing the global energy market.

While the new insurance framework offers a way to calculate costs, steep premiums and lingering security risks mean disruptions at one of the world’s most critical oil chokepoints remain far from resolved.

“It’s too expensive,” a source at a shipping firm said, estimating that port congestion and the seven-day renewal rule could push the effective insurance cost for a single oil shipment to 2 or 3 per cent of a vessel’s value. Insurers may offer No Claim Bonus discounts, potentially reducing the rate to 0.8 per cent for clients with strong safety records, the source added.

For a very large crude carrier (VLCC) valued at US$100 million, the new war risk premium for a single voyage from the Persian Gulf could reach US$2 million to US$3 million – nearly ten times the pre-conflict cost of about US$250,000.

Following the conflict, the London insurance market’s Joint War Committee issued a new list, JWLA-033, expanding the designated war zone to include the entire sea areas of Bahrain, Djibouti, Kuwait, Qatar and Oman.

In response, the International Group of P&I Clubs, a global consortium of 12 mutual insurance associations, announced that existing war risk coverage have become void at midnight on Mar 5, requiring ships to purchase additional special coverage to enter the zone.

The China Shipowners Mutual Assurance Association issued a similar notice on Mar 4, saying its new contracts effective at midnight GMT on Mar 8 would adopt the JWLA-033 list. The association urged members with ships in or heading to the area to secure additional coverage to avoid invalidating their insurance.

A spokesperson for Lloyd’s of London said on Mar 5 that the insurance market is providing quotes to ships seeking to transit the area, according to Reuters. Lloyd’s is also reportedly in discussions with the US International Development Finance about a plan for political risk insurance and guarantees for maritime trade in the Gulf.

While the new insurance rates allow shipowners to estimate voyage costs and negotiate freight rates, a full resumption of traffic remains uncertain as cargo owners must still negotiate their own war risk insurance, a shipping analyst said.

Reflecting market panic, tanker charter rates have shattered records. On Mar 5, a VLCC named Adamantios was chartered by a refinery under India’s Reliance Industries Group for US$538,000 per day. On the same day, another VLCC was chartered by an Indian petrochemical firm for US$770,000 per day.

Just two days earlier, a VLCC had been chartered by South Korean refiner GS Caltex for a then-record US$440,000 per day to transport oil from Saudi Arabia’s Yanbu port on the Red Sea.

“It’s simply unimaginable. That equates to a transportation cost of more than US$20 per barrel, roughly a quarter of the oil price,” the shipping analyst said. The analyst described the sky-high rates as acts of “extreme panic” by markets heavily dependent on the Strait of Hormuz rather than a reflection of broader market conditions.

Shipping consultancy Drewry said in a Mar 3 report that a planned production increase by Organization of the Petroleum Exporting Countries of 206,000 barrels per day starting in April would do little to offset a continued closure of the strait.

With limited spare capacity outside the Middle East, Asian buyers are scrambling for alternative crude from West Africa, Latin America and North America, which will significantly increase ton-mile demand and tighten vessel availability.

Some oil is still flowing from the region. Saudi Arabia is using its East-West pipeline to transport crude from the Persian Gulf to its Red Sea export terminal at Yanbu. On Mar 6, more than 10 oil tankers, including VLCCs, were loading at Yanbu, with more than 30 additional vessels en route.

However, the workaround has limits. “The Saudi pipeline’s capacity is limited to three million to four million barrels a day, which is roughly equivalent to two VLCC cargoes,” the head of a Chinese oil tanker company told Caixin.

“Efficiency is also reduced because ships bound for Europe must lighten loads to pass through the Suez Canal, while routes to East Asia are significantly longer.” CAIXIN GLOBAL