- Shipping traffic through the Strait of Hormuz dropped 80% in 24 hours, falling from 77 daily crossings to only 4.
- Protection and Indemnity clubs cancelled war risk cover extensions on 2 March, giving just 72 hours’ notice after reinsurers withdrew.
- War risk premiums skyrocketed from 0.2% to 1% of vessel value, a 400% increase that disrupts voyage economics.
In early March 2024, the global maritime industry faced a sudden crisis as insurance actions virtually closed the Strait of Hormuz. Following attacks on Iran, reinsurers pulled support, forcing P&I clubs to axe critical war risk extensions. This led to an overnight traffic collapse, stranding vessels and threatening the flow of 20% of the world’s oil and gas.
Context and Background
Insurance markets have previously dictated maritime access in conflict zones. For instance, in 2022 after Russia invaded Ukraine, similar war risk cover cancellations occurred in the Black Sea. The Strait of Hormuz, a key chokepoint averaging 77 vessel transits daily, had already seen reduced traffic due to military threats. Iran’s Revolutionary Guard declared the strait closed, warning of ship attacks.
In-Depth Technical Analysis
Protection and Indemnity clubs (P&I clubs, mutual insurers covering civil liabilities for about 90% of the global merchant fleet) issued cancellation notices on 2 March. They allowed 72 hours to remove war risk extensions, which are add-on clauses covering liabilities from war perils like attacks or seizures.
Reinsurers withdrew due to aggregation risk. Hundreds of ships concentrated in a confined area amplify potential exposure to large claims. Insurers assessed the geographic spread of hostilities, including seven tankers hit by drones in Omani and UAE waters, and uncertainty over conflict duration.
Concrete Operational Implications
Without adequate insurance, ships cannot be chartered and cargo financing halts. Owners and operators must seek replacement terms, subject to new underwriting assessments and higher costs. The Lloyd’s Market Association Joint War Committee expanded its listed high-risk areas to include waters off Bahrain, Djibouti, Kuwait, Oman, and Qatar.
Hundreds of tankers remain anchored at waiting areas. Additional premiums for Gulf voyages rose from 0.2% to 1% of vessel value, directly impacting freight profitability and potentially rendering some trips unviable.
Impact on the Labour Market
This situation may reduce demand for crews on vessels operating in the region, affecting captains and officers. Simultaneously, it increases need for risk management specialists and marine insurance underwriters, creating opportunities in assessment and compliance roles.
Macro Context
Geopolitically, Middle East tensions jeopardise global energy supply stability. From a regulatory perspective, such events highlight the maritime sector’s reliance on global insurance structures. The trend towards volatile premiums in conflict zones could accelerate investments in monitoring technologies and alternative routes.
Outlook
Traffic will only resume when replacement cover is secured and insurers regain confidence in strait safety. This could take weeks, depending on conflict evolution. Long-term, the sector might see greater route diversification and a focus on parametric insurance to mitigate risks.
FAQ
What are war risk extensions in P&I insurance?
War risk extensions are additional clauses to standard Protection and Indemnity policies that cover civil liabilities arising from war perils, such as attacks or captures.
Why did reinsurers withdraw support for Hormuz Strait coverage?
Reinsurers withdrew due to aggregation risk from vessel concentration in the strait and escalating hostilities, which increase potential exposure to large-scale claims.
How does this affect operational costs for shipping companies?
Operational costs are heavily impacted as war risk premiums surged from 0.2% to 1% of vessel value, adding significant overheads that can make voyages economically unfeasible, especially for older or high-value ships.
Are there precedents for insurance-driven maritime route closures?
Yes, a similar event occurred in 2022 after Russia’s invasion of Ukraine, when war risk cover was cancelled in the Black Sea before new terms were negotiated for grain exports.
Editorial Note: This article has been professionally adapted from Spanish to British English
for the WishToSail.com international maritime audience. Original article published at
QuieroNavegar.app.
