The US government is stepping in to help cover insurance for ships passing through the Strait of Hormuz, but experts warn this may not be enough to get commercial shipping moving again in the area. The strait is a crucial chokepoint, handling about one-fifth of the world’s oil and seaborne gas. However, ongoing conflict involving the US, Israel, and Iran has made the area dangerous, causing many insurers to pull back or pause war risk coverage for vessels heading to the Gulf.
Some shipping companies are stuck, waiting anchored outside the strait because they lack insurance that covers risks from attacks or military actions. Industry insiders say insurance hasn’t disappeared completely. Groups like the International Underwriting Association and the International Union of Marine Insurance say coverage still exists, especially for single voyages, as long as the ship’s flag state allows passage.
To address the problem, the US International Development Finance Corporation (DFC) has offered to provide political risk insurance and back financial guarantees for ships passing through Hormuz. Naval escorts might also be part of this plan. But the DFC is typically set up to handle risks like expropriation or currency problems in developing countries—not the dangers of war zones. Analysts at JPMorgan estimate about 329 ships in the Persian Gulf would need roughly $352 billion in coverage, which is more than the DFC’s limit of $205 billion.
Experts, including William Henagan from the Council on Foreign Relations, say the agency can’t realistically insure all maritime trade in the area. This isn’t the first time the US has stepped in like this. During the 1980s Iran-Iraq war, Washington reflagged tankers and arranged naval escorting when private insurers pulled back. After 9/11, the government also issued war risk policies to keep shipping moving.
Morningstar DBRS, a financial analysis firm, points out that the biggest problem is not just insurance availability, but the real danger ships face from missile strikes, drones, and damage to vessels. Insurance helps with financial losses, but it doesn’t make the waters safer for crews and ships.
The firm suggests a different approach—something like the Terrorism Risk Insurance Act (TRIA). Under TRIA, private insurers stay in charge of covering risks, but the government steps in to help after losses pass a certain threshold. This kind of backup protects public funds and keeps the insurance market stable. It also avoids pushing out private insurers from the market.
It’s still unclear if any US-backed insurance would cover ships not registered in the US, which is important because many vessels stuck near Hormuz are foreign-flagged. Continued problems in the strait could cause freight costs to rise and make energy prices more volatile worldwide. For now, the future of marine insurance in this key oil route remains uncertain, caught between the risks of conflict and the limits of public support.