A landmark US-Iran agreement may reopen the Strait of Hormuz, but marine insurers warn the crisis is far from over, with war-risk premiums still running as much as 30 times above pre-conflict levels.
The agreement, which US President Donald Trump said could reopen the critical shipping lane by Friday, sent oil prices lower and raised hopes that one of the most disruptive maritime crises in recent years may be nearing an end. But industry participants said the practical realities of restoring safe passage through the waterway remain uncertain.
“As you can imagine, we've all been sitting with bated breath, watching the market and seeing what's going to happen,” Seb Simmonds (pictured), managing director of public sector and international at Pen Underwriting. “The region remains highly volatile, and it's still a very difficult environment.”
Traffic through the strait, which handles a significant share of global oil and liquefied natural gas exports, has fallen dramatically since strikes on Iran began earlier this year. Hundreds of vessels remain stranded on either side of the chokepoint waiting for greater clarity before resuming normal operations.
War-risk premiums for the Persian Gulf increased from roughly 0.1% to around 1% as hostilities escalated, according to data from S&P Global. Simmonds said that for vessels transiting the Strait of Hormuz itself, rates initially climbed to approximately 7.5% before easing back to between 2.5% and 3%.
The pricing movements mirror findings from a recent Howden Re analysis, which described conditions across marine hull war, cargo war and political violence markets as being under "extreme" pressure. Howden Re said insurers expanded high-risk zones, increased war-risk premiums and intensified scrutiny of vessel movements as attacks on shipping and energy infrastructure mounted.
The deteriorating security situation also prompted many marine insurers to invoke seven-day cancellation provisions embedded in war-risk policies, allowing them to withdraw cover and reissue it at significantly higher rates as conditions changed.
The clauses, which allow insurers to terminate coverage with seven-days’ notice if geopolitical conditions deteriorate significantly, are designed to give insurers flexibility during rapidly evolving conflicts.
According to Howden Re, the pace of escalation in the Gulf forced underwriters to reassess risk almost continuously as attacks on commercial vessels, military strikes and threats to energy infrastructure increased uncertainty across the region.
The broker noted that many insurers either cancelled existing terms or amended cover through additional premiums and revised trading warranties as the crisis deepened. The process often meant that shipowners had to secure fresh quotations before entering high-risk areas, with premiums recalculated based on the latest intelligence and threat assessments.
While some market participants questioned the practice of cancelling and reissuing policies as conditions deteriorated, Simmonds said the process helped preserve capacity and ensured cover remained available for vessels operating in increasingly dangerous circumstances. “I think this is a standard, tried-and-tested market practice that ensures there's capacity available in the market,” he said. “For me, it's an essential part of being able to offer cover to clients who are stranded in very difficult situations.”
Despite the persistent pressures, capacity has remained available, said Simmonds, who noted that "no single insurer is overexposed because capacity is being shared."
Industry observers caution that an agreement alone will not remove many of the practical challenges facing shipowners and insurers.
Bloomberg reported that uncertainty remains around potential mines, electronic interference, navigation safety and the possibility of renewed hostilities. Even if a deal holds, insurers and shipping companies will need confidence that routes can be safely navigated before large-scale movements resume.
The geography of the strait compounds those concerns. "One thing that's easy to overlook is just how narrow some of these transit routes are," Simmonds said, noting the Strait of Hormuz is only about 21 miles wide at its narrowest point. “That creates a huge concentration of risk,” he pointed out.
The ripple effects also extend well beyond marine insurance. According to global research firm Wood Mackenzie, the closure of the strait removed more than 80 million tonnes per annum of LNG supply from global markets, equivalent to roughly 20% of worldwide supply. The firm warned that prolonged disruption could reshape energy markets, investment decisions and global supply chains for years.
Howden Re has warned that the crisis is evolving into a broader macroeconomic insurance event, with implications extending across energy, political violence, supply chain and property-related exposures. For now, however, marine underwriters remain focused on the immediate challenge of determining whether the reopening will translate into a sustainable reduction in risk.
Michelle To, managing director of business Intelligence, Howden Re, said: “Importantly, this event is... testing how the industry models interconnected geopolitical and economic risk. Clients are increasingly focused on resilience, scenario planning and understanding where concentrations exist across their global operations.”
Whether rates continue to fall will depend largely on the durability of the agreement and the speed with which vessel traffic returns to normal. The collapse of the deal would likely trigger another immediate repricing of risk; however, a sustained period of stability could gradually restore more normal market conditions.
"The market will want evidence that the agreement is holding and that vessels can transit safely before pricing fully normalizes," Simmonds said. "It's not something that happens overnight."
