On June 17, Trump and Iranian President Pezeshkian signed a Memorandum of Understanding guaranteeing toll-free passage through the Strait of Hormuz for 60 days. Two days later, Iran circulated a terms-and-conditions document to the shipping industry. It requires all transiting vessels to carry insurance approved by the Persian Gulf Strait Authority. During the MOU window, that insurance is free. After day 60, the PGSA "reserves the right to introduce insurance fees in the future."
That sequencing is not accidental. Tehran is using the goodwill window to establish a legal and commercial precedent: Iranian-approved insurance is a condition of transit through the Strait of Hormuz. The precedent will still be standing on day 61.
"It's madness. This whole situation is a mess," one major tanker owner told Lloyd's List, which first reported the PGSA document on June 19. The reaction is understandable. But for underwriters, the document is something more specific: a unilateral assertion of jurisdiction over transit insurance in a waterway that international law classifies as subject to the right of innocent passage -- a right no single coastal state can condition or restrict.
The strait has been effectively closed since February 28, when US and Israeli airstrikes against Iranian targets triggered the worst disruption to global maritime trade in decades. The insurance market felt it before the military blockade even formally began. War risk premiums surged fivefold within 48 hours. The Lloyd's Market Association's Joint War Committee redesignated the entire Arabian Gulf a conflict zone. Tanker traffic collapsed more than 80% before Iran had formally closed anything.
Pre-crisis, insuring a VLCC for a Hormuz transit ran to roughly 0.2% of hull value. Within days, that had climbed to between 1.5% and 3%, with US-, British- and Israeli-connected vessels charged as much as 5%. A $150 million tanker was facing an insurance bill of up to $7.5 million for a single voyage. The US government stepped in with a $40 billion reinsurance programme anchored by Chubb, and today Lloyd's and Chubb launched a new consortium offering $200 million in capacity for hull and P&I risks and a further $200 million for cargo. The private market is returning, tentatively. The PGSA document arrives into that fragile reopening.
Key figures
Three provisions in the PGSA terms-and-conditions carry direct underwriting implications.
First, the insurance is mandatory and the PGSA is the sole approving authority. Not the owner's existing underwriters. Not the International Group of P&I Clubs. Not Lloyd's. The document states that the PGSA is "the sole body responsible for processing transit applications and issuing permits." Any vessel without PGSA-approved cover is, by Tehran's logic, not covered for a transit.
Second, the route designation is a potential policy trigger. The PGSA insists that "passage is permitted only via the designated route near Larak Island" -- the northern channel along the Iranian coast -- and that "any deviation is strictly prohibited and will be treated as a violation." A growing number of vessels have been transiting the US-protected southern corridor near the Oman coast. Those vessels are not using the PGSA-approved route. If one of them suffers a loss and the owner holds PGSA-approved cover, Tehran will have grounds to argue the policy is void. If the owner instead holds London market cover and the loss triggers a claim, the PGSA framework creates the conditions for a contested multi-jurisdictional dispute before a single surveyor sets foot on the vessel.
Third, the penalties clause is an open-ended legal exposure. The PGSA can "enforce penalties, revoke passage permissions, or take further legal action" for non-compliance. What those penalties are, what forum adjudicates them, and whether they affect claim settlements against non-compliant vessels are all questions the document leaves unanswered.
"Allowing such charges would set a dangerous precedent for other strategic waterways." -- Arsenio Dominguez, IMO Secretary-General
There is a fourth problem the PGSA document does not address, but which underwriters will be pricing immediately: the PGSA itself was designated by the US Office of Foreign Assets Control in May 2026.
During the 60-day window, the insurance is free -- no payment changes hands, and the sanctions exposure is arguably manageable. But after day 60, if the PGSA introduces fees as it has explicitly reserved the right to do, a shipowner acquiring PGSA-approved insurance would be paying a sanctioned entity. That creates a direct conflict between the operational need to comply with PGSA requirements and the legal prohibition on transacting with OFAC-designated organisations. The MOU's "toll-free" guarantee does not extend to insurance fees. The US position, per JD Vance on Thursday, is that "international waterways should be free of tolls" -- not free of insurance premiums.
Earlier in the crisis, vessels were being asked by Iran to pay transit fees in Chinese yuan, reportedly to bypass sanctions-linked banking restrictions. The PGSA insurance mechanism is a more sophisticated version of the same problem: a required payment to an Iranian authority, dressed in the language of an insurance product. Whether the payment is called a toll or a premium does not change the OFAC analysis.
Vice-president Vance said Thursday that the MOU "contemplates that the Omanis, the Iranians, and the Gulf coast coalition together will figure out a proper security framework for the straits in the future." That negotiation is where the PGSA insurance requirement will be legitimised or challenged.
IMO Secretary-General Dominguez confirmed receipt of the PGSA document and said discussions are ongoing. He has previously warned that transit fees would set a dangerous precedent for other strategic waterways -- a principle that applies equally to mandatory insurance requirements imposed by a single coastal state. Whether the framework negotiations produce a regime that explicitly displaces the PGSA system, or simply leave it standing by omission, will be the central underwriting question for August renewals.
Iran's strategy throughout this crisis has been to use commercial market logic rather than direct military action to assert control over the strait. Attack a statistically small number of vessels, generate enough claims data to trigger JWC reclassification, and close the strait through private market logic without a formal blockade. The PGSA insurance requirement is the next iteration of that approach. It costs Tehran nothing during the MOU window. It builds a legal and commercial structure. And it positions Iran to charge for a service -- approved transit insurance -- that every vessel using the strait will, under the PGSA framework, be required to carry.
The MOU bought eight weeks. Marine underwriters pricing Hormuz cover renewals in August and September are not pricing a resolved situation. They are pricing what the strait looks like on day 61 -- and on that question, the PGSA document published today is the most important piece of evidence available.
