War risk insurance is adding as much as $8 to the price of a barrel of crude oil amid the Iran conflict, David Osler, law and insurance editor at shipping news outlet Lloyd's List, said on an industry call, according to reporting by AGBI, a cost that flows directly into what American consumers pay at the pump.
Insurers have paid out roughly $2 billion in claims across more than 70 cases since the conflict began, Osler said, a figure sourced from a senior market contact last month and likely higher since. That makes it the second-largest hit to marine insurers in more than a decade, trailing only the payouts tied to the 2024 collapse of Baltimore's Francis Scott Key Bridge.
The mechanism behind the added cost is the additional premium insurers charge when vessels enter designated high-risk zones. Shipowners typically carry annual baseline war-risk policies running several hundred thousand dollars to cover losses from conflict, terrorism, strikes and riots, but that surcharge has jumped from a fraction of a percentage point in normal conditions to as much as 10% of a vessel's value once it enters a high-risk area. For a very large crude carrier worth roughly $140 million, that can mean millions of dollars in added insurance costs for a single voyage – costs that get passed through the supply chain to the price at the pump for American drivers.
"Roughly $7 or $8 on the price of a barrel of crude is now down to war-risk insurance alone," Osler said.
The risk zone itself has also grown. Attacks on vessels linked to Saudi Arabia by the Iran-backed Houthi militia have pushed insurers to extend the high-risk designation roughly 800 kilometers north along the Red Sea coast near the Bab Al-Mandab strait, the southern gateway to the Red Sea, meaning more vessels bound for northern ports now face the added premium.
The exposure has renewed attention on whether alternative export routes could eventually bypass the Strait of Hormuz altogether. US Treasury Secretary Scott Bessent said this week that new pipelines could make the strait a "worthless piece of water" within two years, as Gulf exporters increasingly shift toward moving energy overland instead of by sea.
That diversification is real, but the timeline is doubtful, according to Neil Atkinson, a visiting fellow at the Washington-based National Center for Energy Analytics, as reported by AGBI. Saudi Arabia has discussed expanding its East-West pipeline, and the UAE is weighing additional export capacity at Fujairah, which sits outside the strait, but Atkinson said projects of that scale require heavy investment, labor and construction materials, and could take years to complete. The new infrastructure would also remain a target for military attack, meaning it would redistribute the underlying risk rather than remove it.
"The fact it's going to happen soon, I think, is far-fetched," Atkinson said.
Atkinson also pushed back on predictions that Iran could burn through its oil revenues by December following a sharp drop in exports, comparing Tehran's approach to Muhammad Ali's "rope-a-dope" strategy of absorbing punishment while waiting for an opponent to tire. Iran, he said, has repeatedly defied expectations about its ability to withstand pressure since the conflict began in late February.
