Global trade depends heavily on maritime shipping. From crude oil and liquefied natural gas to manufactured goods and raw materials, most international commerce travels by sea. But shipping goods across oceans involves significant risks: storms, collisions, piracy, cargo damage, and increasingly, geopolitical conflict.

This is where marine insurance becomes essential.

Marine insurance protects shipowners, cargo owners, exporters, importers, and financial institutions against losses during sea transport. Without adequate insurance coverage, vessels typically cannot operate because ports, charterers, banks, and regulators require proof of insurance before allowing ships to sail.

In times of geopolitical instability, marine insurance becomes even more important and more expensive.

Marine Insurance: the backbone of energy trade

While geopolitical conflict often dominates headlines, the insurance market quietly determines whether ships can continue operating. Marine insurance plays several critical roles:

• Enables ships to secure financing
• Protects cargo owners and exporters
• Allows ports and regulators to approve voyages
• Ensures compensation in case of loss or damage

When insurers withdraw or increase premiums, the cost of global trade rises immediately.

What Marine Insurance covers

Marine insurance is not a single policy but a group of coverages designed to protect different stakeholders in shipping. The main types include:

• Hull and Machinery Insurance: Covers damage to the ship itself caused by accidents, collisions, or other maritime hazards.
• Cargo Insurance: Protects the goods being transported from loss or damage during transit.
• Protection and Indemnity (P&I) Insurance: Covers third-party liabilities such as crew injury, environmental damage, or collision liabilities.
• War Risk Insurance: Covers losses caused by war, terrorism, piracy, missile strikes, or military conflict, risks that are usually excluded from standard marine policies.

It is this war risk cover that has recently become the center of global attention.

The Strait of Hormuz: A chokepoint

The Strait of Hormuz, located between Iran and Oman, is one of the most strategically important waterways in the world. Some facts about it:

• Roughly 20% of global oil supplies pass through this narrow channel.
• Large volumes of liquefied natural gas (LNG) from Qatar also transit this route.
• The strait is only about 33 km wide, with narrow shipping lanes.

Because so much global energy flows through this passage, any disruption immediately affects shipping markets, energy prices, and insurance costs worldwide.

The conflict in the Arabian Peninsula

The ongoing war in the Arabian peninsula between Iran and the United States and its allies has dramatically increased maritime risks in the region. Recent incidents include:

• Multiple tanker strikes and drone attacks
• Damage to several oil tankers
• At least two fatalities among maritime personnel
• Nearly 150 vessels stranded or anchored near the strait

Iranian authorities have warned that vessels attempting to pass through the strait could be attacked, effectively halting commercial traffic in one of the world’s busiest energy corridors.

Why Insurers are cancelling War Risk cover

In response to the escalating conflict, several major maritime insurers have cancelled war risk insurance coverage for ships operating in the Gulf. Insurers issuing cancellation notices include major P&I clubs and marine insurers such as: Gard, Skuld, North Standard, The American Club etc.

These cancellations mean shipowners must either obtain new insurance coverage at significantly higher rates or avoid the region entirely.

Without war risk cover, ships generally cannot enter high-risk waters, as charterers, financiers, and regulators require valid insurance protection.

War Risk premiums are rising rapidly

Before the escalation, war-risk insurance for a ship might cost roughly 0.2% to 0.25% of the vessel’s value for a voyage. Since the start of the conflict:

• Premiums have risen to 0.5% or even 1% of ship value
• For a $100 million tanker, this means premiums rising from about $200,000 to nearly $1 million per voyage

Industry analysts estimate marine insurance costs could increase by 50% to 100% or more, depending on how long the conflict continues.

Shipping companies are rerouting vessels

The insurance crisis has forced major shipping companies to alter routes.Global carriers such as Maersk, Hapag-Lloyd etc. have diverted vessels away from high-risk waters.

Ships are increasingly travelling around Africa’s Cape of Good Hope, which adds 10 to 15 days to voyages between Asia and Europe. Longer routes mean: Higher fuel consumption, reduced shipping capacity and increased freight costs

Some shipping lines have also imposed conflict surcharges on cargo moving through the region.

The IMPACT:

On global oil and gas prices

The Strait of Hormuz carries roughly one-fifth of global oil consumption and major LNG exports.

As shipping through the strait slowed, energy markets reacted quickly.

• Brent crude prices surged by as much as 13%.
• LNG production disruptions in Qatar triggered sharp increases in gas prices.
• European gas prices and Asian LNG prices jumped significantly.

Higher shipping insurance and freight costs ultimately translate into higher delivered energy prices worldwide.

On India

India is particularly exposed to disruptions in the Strait of Hormuz.

India imports over 80% of its crude oil and around 40% of India’s oil supply passes through the Strait of Hormuz. About 60% of oil imported from Gulf producers travels through this route.

A disruption in the strait therefore directly affects:

• Fuel prices
• Industrial production costs
• Inflation
• Government fiscal balances

Even temporary disruptions can ripple across India’s economic system.

The current crisis highlights that global trade relies not just on ships and ports, but also on insurance markets.

Marine insurance allows commerce to continue even in risky environments. But when conflict increases risks beyond acceptable limits, insurers have to reprice or withdraw coverage. In a world where geopolitical tensions can disrupt vital maritime corridors overnight, marine insurance remains one of the most critical safeguards of global trade.

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