War in the Middle East caused consortiums to cancel policies passing through the region; Ship charter also quadruples
An interim solution for war risk insurance has emerged for vessels transiting the . However, with daily charter rates for supertankers quadrupling in a week to nearly $800,000, it remains uncertain when normal shipping traffic will resume on this important waterway.
International insurers have begun to sign new insurance contracts against war risks for ships entering the Persian Gulf and the Strait of Hormuz, at a rate of 1% of the replacement value of the vessel’s hull, renewable every 7 days, as determined by several shipping companies. Before the recent conflict, the rate was 0.25%.
The rise in costs comes after a sudden military strike by the United States and Israel against Iran, which led major insurance consortiums to void existing war risk policies and caused a key industry committee to drastically expand its list of waters considered war zones.
Rising insurance and freight rates reflect the immense logistical and financial challenges facing the global energy market. While the new insurance framework offers a way to calculate costs, high premiums and persistent security risks mean disruptions in one of the world’s most critical oil chokepoints are still far from resolved.
“It’s very expensive”said a source at a shipping company, estimating that port congestion and the 7-day renewal rule could raise the effective cost of insurance for a single oil shipment to 2% or 3% of a vessel’s value.
Insurers can offer no-claims discounts (NCB), potentially reducing the rate to 0.8% for customers with a solid safety record, the source added.
For a large oil tanker (VLCC) valued at US$100 million, the new war risk premium for a single trip from the Persian Gulf could reach US$2 million or US$3 million — almost 10 times the pre-conflict cost of around US$250,000.
After the conflict, the JWC (Joint War Committee) of the London insurance market issued a new list, JWLA-033, expanding the designated war zone to include the entire maritime area of Bahrain, Djibouti, Kuwait, Qatar and Oman.
In response, the P&I Clubs, a global consortium of 12 mutual insurance associations, announced that existing war risk coverage would be withdrawn at midnight on March 5, requiring ships to acquire additional special coverage to enter the zone.
The China Association of Shipowners’ Mutual Insurers issued a similar notice on March 4, saying that its new contracts, effective from midnight GMT on March 8, would adopt the JWLA-033 list. The association recommended that its members with ships in the area or on their way to it take out additional coverage to avoid invalidating their insurance.
A spokesperson for Lloyd’s of London said on March 5 that the insurance market is providing quotes for ships wishing to transit through the region, according to the Reuters. Lloyd’s is also said to be in talks with IDFC (US International Development Finance Corporation) over a political risk insurance plan and guarantees for maritime trade in the Gulf.
While new insurance rates allow shipowners to estimate voyage costs and negotiate freight rates, the full resumption of traffic remains uncertain as cargo owners still need to negotiate their own war risk insurance, a maritime industry analyst said.
Reflecting market panic, tanker charter rates hit records. On March 5, a VLCC (Very Large Crude Carrier) called Adamantios was chartered by a refinery belonging to the Indian group Reliance Industries for US$538,000 per day. On the same day, another VLCC was chartered by an Indian petrochemical company for US$770,000 per day. Just 2 days earlier, a VLCC had been chartered by the South Korean refinery GS Caltex for a record price at the time, US$440,000 per day, to transport oil from the port of Yanbu, in Saudi Arabia, on the Red Sea.
“It’s simply unimaginable. This equates to a transportation cost of more than $20 per barrel, approximately a quarter of the price of oil”said the shipping analyst. He described the exorbitant fees as acts of “extreme panic” by markets heavily dependent on the Strait of Hormuz, rather than a reflection of broader market conditions.
Shipping consultancy Drewry said in a March 3 report that the , from April onwards, would do little to offset the continued closure of the strait.
With limited spare capacity outside the Middle East, Asian buyers are seeking crude oil alternatives in West Africa, Latin America and North America, which will significantly increase ton-mile demand and constrain vessel availability.
Some oil is still flowing from the region. Saudi Arabia is using its East-West pipeline to transport crude oil from the Persian Gulf to its Red Sea export terminal in Yanbu.
As of March 6, more than 10 tankers, including VLCCs, were loading at Yanbu, with more than 30 additional vessels on the way.
However, this workaround has limitations. “The capacity of the Saudi pipeline is limited to 3 or 4 million barrels per day, which is equivalent to two VLCC loads”the head of a Chinese oil transport company told Caixin.
“Efficiency is also reduced because ships bound for Europe need to lighten cargo to pass through the Suez Canal, while routes to East Asia are significantly longer.”stated.
This report was originally in English by Caixin Global on March 7, 2026. It was translated and republished by Poder360 under mutual content sharing agreement.
