The Strait of Hormuz, effectively blocked for weeks, is throwing marine brokers and their clients impacted by Gulf supply chains ever deepening insurance challenges. According to the International Crisis Group, traffic through the strait has now collapsed by close to 95%. Since the start of the US-Iran conflict, cargo premiums have surged dramatically and current data shows some have quadrupled and are continuing to climb.
“They have surged up,” said Dr Lurion De Mello (pictured), senior lecturer in the Department of Applied Finance at Macquarie University. As one illustration of the repricing now underway on larger energy-related cargoes, De Mello cited figures that capture the scale of the shift: “Some cargoes that were about US$350,000 are now costing US$1.5 million.”
On multi-million dollar cargo shipments, that translates into premium increases that are reshaping the economics of Gulf trade. Nor is it the ceiling. “It is going to get worse, I think,” De Mello said.
The surge in cargo premiums is not an isolated market event and is compounding other costs that have become marine broker headaches. Fuel oil costs - marine diesel - are climbing alongside insurance. Charter rates for LNG tankers have surged from around $150,000 to $200,000 per day before the conflict to approximately $500,000, with oil tanker rates only easing slightly from recent peaks. Every additional day a cargo spends at sea, rerouted around the Cape of Good Hope or stalled in Gulf congestion, adds war-risk exposure, demurrage and delay-in-start-up risk to the claims equation.
“The cost of goods and services are going to skyrocket because all these extra costs of transportation and insurance are going to be passed on to the consumer,” De Mello said. The inflationary peak, he estimated, is likely three to four months away - meaning the claims and disputes phase has not yet arrived.
For Australian clients specifically, the exposure is direct. Australia’s fuel supply currently relies heavily on very large crude carriers delivering diesel from the United States. Every one of those shipments requires cargo cover before leaving port, at prices that continue to rise.
The practical broker checklist that emerges from multiple insurance industry experts is pointed. War risk positions on cargo programmes should be reviewed urgently - not just for marine clients, but across agriculture, transport and energy lines. Sums insured need revisiting as cargo values and replacement costs have moved sharply upward. Contingent business interruption triggers and trade disruption insurance should be on the agenda for any client with Gulf supply chain exposure, as Will Mule of HUB International noted at RIMS in May: clients need “plans B, C, D, and E” because the situation changes daily. Documentation and timely insurer notification must be front of mind. As international disputes partner Mahmoud Abuwasel of Wasel & Wasel told Insurance Business in May, insureds who fail to notify promptly or take independent remedial action without insurer approval risk having claims rejected outright — a warning that brokers should be passing directly to clients right now.
Alongside the premium surge, a second threat has emerged that is potentially more dangerous. Iran’s Hormuz Safe - a state-backed digital insurance platform for vessels transiting the strait, with premiums payable in cryptocurrency - sits in direct legal opposition to the US government’s $40 billion DFC-backed maritime reinsurance facility, led by Chubb and backed by Liberty Mutual, Berkshire Hathaway, AIG, Travelers and CNA.
“I think that’s very innovative but also dangerous at the same time if any western companies would take out an insurance contract from Iran,” said De Mello, referring to the risk that any broker or client engaging Hormuz Safe would face immediate exposure to US Treasury OFAC sanctions enforcement. That’s a compliance failure with career-defining consequences.
