The Strait of Hormuz, through which 20% of the world’s oil and liquefied natural gas (LNG) is transported in peacetime, has become a gateway to the global economy since the United States and Israel began their war against Iran nine weeks ago.
The virtual closure of the strait, a narrow artery connecting Gulf oil and gas producers to the open sea, is causing tremors to be felt around the world, raising fears of a global recession.
About 2,000 ships are still stuck in the Gulf, waiting to pass. But even if full traffic through the Strait were to resume, shipping would still be hampered. The United States has said it will take six months to clear landmines believed to have been laid by Iran. In fact, this was one of the main reasons why shipping insurers canceled “war risk” insurance on tankers transiting the Strait in March.
Even if the strait reopens, high levels of risk remain for ships passing through it, meaning premiums could rise from around 0.25% of a ship’s value before the war to up to 5% now, shipping insurers told Al Jazeera this week.
So what does it take for an insurance company to underwrite the Strait of Hormuz as safe?
What is happening in the Strait of Hormuz?
Following the Feb. 28 airstrike on Tehran that killed Supreme Leader Ayatollah Khamenei, Iranian forces closed the strait that spans the territorial waters of Iran and Oman. His son Mojtaba Khamenei has since taken over the top job in Tehran.
Tehran used access to the strait as its most powerful tool during U.S.-Iranian talks in Islamabad, Pakistan, on April 11, which yielded no results.
Two days later, US President Donald Trump announced a naval blockade of Iranian ports and the Strait of Hormuz to put economic pressure on Tehran, which had previously been able to transport its exports through the Strait. Since then, the U.S. government has seized or returned ships linked to Iran in both the Gulf and the Indo-Pacific region, a move Tehran has accused of “piracy.”
The Iranian government had previously allowed ships from countries it considered “friendly” or paid a toll (mainly India, Pakistan, Turkiye, and China) to pass through the strait, but it has now barred all foreign-flagged vessels from passing through the strait until the United States lifts its naval blockade.
Meanwhile, earlier this month, Iran released a map showing parts of the strait it says are mined and authorized alternative routes for ships. This route will bring the ship much closer to the coast of Iran, where it previously passed near Oman. Iran said this was to protect the tanker from the risk of mines.
In a social media post on Thursday, President Trump ordered the U.S. military to “shoot and kill any boat, even a small one, that has mines in the waters of the Strait of Hormuz (all Navy ships, 159 of them on the ocean floor!)” and stressed there was “no need to hesitate.”
“Furthermore, our ‘minesweepers’ are currently sweeping the straits. I hereby order the continuation of their operations, but at triple the level!” he wrote in a post on his Truth Social platform.
According to the International Energy Agency, the Strait of Hormuz traffic stoppage caused the world market’s “largest oil supply disruption in history,” surpassing the oil crisis of the 1970s.
How long does it take to clear mines in the Strait of Hormuz?
On April 11, the U.S. military announced that it had begun an operation to clear mines in the Strait. Two U.S. Navy guided missile destroyers, USS Frank E. Peterson and USS Michael Murphy, conducted the operation. Later, underwater drones reportedly also joined in to detect landmines.
On April 21, Pentagon officials informed the U.S. House Armed Services Committee that it could take six months to completely clear the Strait of Hormuz of land mines deployed by the Iranian military.
They added that such operations were unlikely to be carried out until the end of the war. U.S. Defense Secretary Pete Hegseth told reporters Friday that he is “confident in our ability to clear the mines we have identified within a reasonable time frame.”
But analysts have warned that completely clearing the Strait of mines from the Strait of Hormuz could be an almost impossible task. Furthermore, if there is a risk of a mine remaining, the actions of insurance companies will be hampered and traffic will be stopped, shipping insurance companies told Al Jazeera.
This uncertainty is the reward for Tehran’s asymmetric warfare. Oscar Seikaly, CEO of Florida-based NSI Insurance Group, said: “When conditions change rapidly, it becomes almost impossible to responsibly price risk.” “Markets can guarantee volatility, but it is difficult to guarantee uncertainty.”
“War risk insurers are not looking for a risk-free environment; they are looking for the ability to quantify, price and spread risk across sufficient capacity,” he added. This is impossible without certainty about the number of mines in the strait.
Jakob Larsen, head of maritime security at BIMCO, the largest international group representing shipowners, warned that even after peace is brokered, “the mine threat is of particular concern” if there is a return to pre-conflict traffic patterns.
“Given Iran’s indications that portions of the Strait of Hormuz are mined, demining efforts will likely be required to fully reopen the Strait,” Larsen said in a statement.
“Transportation will be limited to the use of routes close to Iran and Oman. Due to their limited nature, these routes cannot safely accommodate the normal traffic volume passing through the Strait of Hormuz,” he pointed out.
What level of safety will the insurance company allow?
Maritime warfare and insurance experts told Al Jazeera that for the Strait of Hormuz to be considered safe again, a sustained commitment by all parties to maintain peace along the sea route is the minimum required.
“There must be clear commitments by all parties to enforce freedom of navigation through established, internationally recognized shipping routes,” said Munro Anderson, director of maritime strategy and operations at Vessel Protect, a London-based specialist maritime war risks insurer.
Anderson told Al Jazeera that the insurance market is in a position to facilitate compensation if the ship’s passage is approved by Iranian authorities.
Still, some risk will remain in transiting the Strait of Hormuz once it reopens, he added. “It’s a matter for each insurance company to decide based on their own preferences as to what level of tolerance that is,” Anderson said.
He noted that “the risks are often multifaceted” for ships attempting to transit the sea route.
Referring to the April 18 attack on the Indian-flagged Sanmar Herald, Anderson added, “The main risk stems from a significant lack of command and control within the Iranian military, resulting in ships still being attacked despite being cleared to transit.”
An Indian-flagged oil tanker came under fire from an Iranian military vessel while en route. In the audio of the incident, the captain can be heard saying, “Sepa Navy! This is the motor tanker Sunmar Herald. You gave me permission to leave. My name is second on your list. You gave me permission to leave. Now firing! Let me turn back!”
Therefore, a temporary cessation of fighting is not enough for underwriters to start insuring ships in the Straits again, NSI’s Seikaly said.
“We need evidence that the threat environment has fundamentally stabilized,” he told Al Jazeera. “That means a durable cease-fire or political settlement, clear naval security, consistent freedom of navigation, no recent seizures or attacks, reliable mine clearance and surveillance, and predictable rules of engagement between the region’s major military actors.”
More importantly, to restore market confidence, insurers are “demanding the resumption of normal vessel sailings over a sustained period, not just isolated sailings.”
“The moment an insurer determines that a single incident could cause a broader regional spread, closing the waterway again or putting multiple vessels at risk at once, it becomes much more difficult to support the risk at scale,” Seikaly said.
How much does war risk insurance cost for Hormuz transit?
Before the war disrupted traffic, most war risk insurance premiums on the Hormuz route were just under 0.25 percent of the ship’s value. Experts say even if the strait were reopened, the value could be up to 20 times higher.
“Recently, the market is pointing to a range closer to 1% to 5%, with outliers potentially even higher depending on the vessel, cargo, flag and ownership,” Seikaly said.
Another UK marine insurance industry official, who asked not to be named, acknowledged that premiums have risen astronomically, adding up to 5% of a vessel’s value. This means that for a hull price of $100 million, a ship would have to pay $5 million in shipping costs, compared to about $250,000 before the war.
“Insurers are closely monitoring signs of progress in negotiations and subsequent increases in risk,” they said.
“If attacks, seizures, mining concerns and military miscalculations continue, insurance premiums could rise sharply,” Seikaly added. “A durable ceasefire and consistent, escorted movements may stabilize prices, but they will not immediately return to pre-conflict levels.”
