Strait of Hormuz remains perilous for commercial shipping amid tensions

The Strait of Hormuz, a crucial passage for global oil and LNG shipments, has been effectively closed due to military actions following the US-Israel war on Iran. Approximately 2,000 ships are currently stranded, with the U.S. estimating it will take six months to clear mines allegedly laid by Iran. Maritime insurers have canceled war risk insurance for tankers, citing heightened risks. Shipping premiums have surged from 0.25% to as much as 5% of hull value, according to industry sources.

Iran has leveraged its control over the strait in negotiations with the U.S., particularly following the February 28 strikes that killed Supreme Leader Ayatollah Ali Khamenei. The U.S. has responded with a naval blockade and aggressive military posturing, including a directive from President Trump to engage any vessels laying mines. Despite Iran previously allowing certain ships to pass, it has now closed the strait to all foreign-flagged vessels until the blockade is lifted.

The uncertainty surrounding mine clearance poses significant challenges for insurers, who require a quantifiable risk to provide coverage. Experts warn that even after a potential peace agreement, the lingering threat of mines will restrict shipping routes and complicate the return to normal traffic levels. The International Energy Agency has described the disruption as the largest oil supply crisis in history, surpassing the oil shocks of the 1970s.

What to watch: The upcoming U.S. military operations to clear mines in the Strait of Hormuz and their impact on shipping traffic.