Since the start of the US-Israeli war over Iran nine weeks ago, the Strait of Hormuz, through which 20 percent of the world’s oil and liquefied natural gas (LNG) is shipped during peacetime, has become a chokepoint of the global economy.
The shock of effectively closing the strait – a narrow artery connecting oil and gas producers in the Gulf to the open seas – is being felt around the world, raising fears of a global recession.
Nearly 2,000 ships are stuck in the gulf waiting for clearance. But even if the strait is reopened to all traffic, there will still be disruptions to shipping. The United States has said it will take six months to clear mines laid by Iran. Indeed, this was one of the main reasons why marine insurers canceled “war risk” insurance for tankers traveling through the strait in March.
Even if the strait reopens, there will still be a high level of risk for ships passing through, which could rise from about 0.25 percent of hull value before the war to 5 percent now, shipping insurers told Al Jazeera this week.
So, what does it take for insurers to consider the Strait of Hormuz safe?
What is happening in the Strait of Hormuz?
Iranian forces closed the strait, which is shared between Iran and Oman’s territorial waters, after the February 28 attack on Tehran that killed Supreme Leader Ayatollah Ali Khamenei. His son, Mojtaba Khamenei, has since held the top post in Tehran.
Tehran used access to the strait as its most powerful tool at talks between the US and Iran in Islamabad, Pakistan on April 11, but they yielded no results.
Two days later, US President Donald Trump announced a naval blockade of Iranian ports and the Strait of Hormuz to exert economic pressure on Tehran, which until then had been able to ship its own exports through this route. Washington has since seized or turned back ships linked to Iran in both the Gulf and the Indo-Pacific region, which Tehran has condemned as “piracy.”
While Tehran was previously allowing ships from countries it considered “friendly” or that pay tolls – mostly from India, Pakistan, Turkey and China – to pass through the strait, it has now closed it to all foreign-flagged ships until the US lifts its naval blockade.
Meanwhile, Iran has published a map showing parts of the strait it said have been mined, and also showing an alternative route for ships approved earlier this month. This route brings ships much closer to Iran’s coast, whereas previously they would have passed closer to Oman. Iran said this would help tankers avoid the danger of mines.
On Thursday, Trump ordered the US military in a social media post to “shoot down and kill any boats, small boats, no matter what they are (their naval vessels are on the bottom of the ocean, there are 159 of them!) that are laying mines in the waters of the Strait of Hormuz”, stressing that “there should be no hesitation”.
“Additionally, our mine ‘sweepers’ are clearing the straits right now. I am ordering that activity to continue, but at three times the level!” he wrote in a post on his Truth social platform.
According to the International Energy Agency, the blockage of traffic in the Strait of Hormuz has caused “the largest oil supply disruption in history” to the global market – bigger than the oil shocks of the 1970s.
How long will it take to clear the mines in the Strait of Hormuz?
US Army on April 11 Said It began clearing mines in the strait. Two US Navy guided-missile destroyers – USS Frank E. Peterson and USS Michael Murphy – conducted the operation. Later they were also reportedly linked to underwater drones to detect mines.
On April 21, Pentagon officials informed the US House Armed Services Committee that it could take six months to completely clear the Strait of Hormuz of mines deployed by the Iranian military.
He said that no such operation was likely to be carried out until the war ended. “We are confident in our ability to clear any mines we identify in a timely manner,” US Defense Secretary Pete Hegseth told reporters on Friday.
However, analysts warn that clearing the Strait of Hormuz of mines with complete certainty may be an almost impossible task. Furthermore, if there is a risk of mines remaining intact, it would paralyze aircraft and stop traffic, marine insurers told Al Jazeera.
This uncertainty is beneficial for Tehran’s asymmetric warfare. “If conditions change by the hour, it becomes almost impossible to price risk responsibly,” said Oscar Seikaly, CEO of NSI Insurance Group, based in Florida, US. “The market can insure against volatility, but it struggles to insure against uncertainty.”
He said, “War-risk insurers are not looking for a risk-free environment; they are looking for risk that they can quantify, price and spread in adequate capacity.” Without any certainty as to the number of mines in the strait, this is impossible.
Jacob Larsson, head of maritime security at BIMCO, the largest international union representing shipowners, warned that even after peace is achieved, “the mine threat remains of particular concern” when it comes to returning to pre-conflict traffic patterns.
“Given Iranian indications that mines have been laid in parts of the Strait of Hormuz, a mine clearance effort will most likely be required to fully reopen the strait,” Larson said in a statement.
“Shipping will be limited to using routes close to Iran and Oman. Due to their limited nature, these routes cannot safely accommodate the normal volume of shipping through the Strait of Hormuz,” he said.
What level of protection is acceptable to insurance companies?
Maritime warfare and insurance experts told Al Jazeera that a permanent commitment by all parties to maintaining peace in the sea route would be necessary for at least the Strait of Hormuz to be considered safe again.
“There must be a clear commitment by all parties to enforce freedom of navigation through established and internationally recognized shipping channels,” said Munro Anderson, director of maritime strategy and operations at Vessel Protect, a London-based UK specialist underwriter of maritime warfare risks.
Anderson told Al Jazeera that the insurance market is in a position to facilitate cover if a ship’s transit has been approved by Iranian authorities.
Still, there will remain some degree of risk in transiting the Strait of Hormuz once it reopens, he said. “The level to which this is acceptable is a matter for each insurer as per their own discretion,” Anderson said.
He said the risks to ships attempting to transit the sea route are often multifaceted.
“The main risk arises from the significant lack of command and control within Iranian forces, which has resulted in ships being cleared for transit yet being attacked,” Anderson said, in reference to the attack on the Indian-flagged ship, Sanmar Herald, on April 18.
The Indian flagged oil tanker was fired upon by Iranian military boats en route. In the audio of the incident, the ship’s captain can be heard saying: “Sipa Navy! This is the motor tanker Sanmar Herald. You cleared me to go. My name is second on your list. You cleared me to go. Now you are firing! Let me go back!”
For this reason, the interruption in fighting would not be enough for underwriters to start insuring ships in the strait again, NSI’s Seykli said.
“They want evidence that the threat environment has fundamentally stabilized,” he told Al Jazeera. “This means a durable ceasefire or political solution, clear naval security guarantees, continued freedom of navigation, no recent ship seizures or attacks, credible mine clearing and monitoring, and predictable rules of engagement between major military actors in the region.”
More importantly, to restore market confidence, insurers “need to resume normal ship movement over a sustained period, not just isolated transits”.
“The moment underwriters believe that a single event could trigger widespread regional surges, close waterways again, or expose multiple vessels at once, the risk becomes very difficult to support on a large scale,” Seikaly said.
How much would war-risk insurance for the Hormuz transit cost?
Before the war disrupted traffic, the war-risk premium for the Hormuz transit was mostly priced at less than 0.25 percent of the hull value. Even if the strait is reopened, the number could be up to 20 times higher, experts say.
“Recently, the market has pointed to a range closer to 1 percent to 5 percent with some outlier quotes depending on ship, cargo, flag and ownership,” Seikaly said.
Another marine insurance industry insider in the United Kingdom, speaking on condition of anonymity, confirmed that premiums have increased significantly, rising to as much as 5 percent of the hull value. This means that for a $100 million hull value, the ship would have to pay $5 million for transit, compared to about $250,000 pre-war.
“The underwriters are carefully monitoring any signs of progress in negotiations or signs of increased risk later,” he said.
“If attacks, seizures, mining concerns or military miscalculations continue, premiums could rise sharply,” Seikaly said. “If there is a durable ceasefire and consistently maintained movement, pricing may stabilize, but it will not immediately return to pre-conflict levels.”
