When US and Israeli forces launched airstrikes against Iranian targets on 28 February 2026, the Strait of Hormuz - through which approximately 20 million barrels of oil flow each day, representing roughly 20 per cent of global petroleum liquids consumption - did not close because of mines or missiles alone. It closed, in large part, because of insurance.
Within 48 hours of those initial strikes, war risk premiums surged fivefold, major marine insurers cancelled existing coverage, and the Lloyd's Market Association's Joint War Committee (JWC) redesignated the entire Arabian Gulf as a conflict zone. Tanker traffic collapsed by more than 80 per cent before Iran's physical blockade was even formally declared. The strait was commercially unnavigable before it was militarily dangerous. That dynamic - in which insurance architecture rather than kinetic threat became the proximate cause of a global energy disruption - sets the stage for understanding why Sunday's announcement of a US naval blockade represents a further, and unusually complex, escalation for the global insurance industry.
President Trump announced on Truth Social early Sunday that US forces would immediately begin blockading all maritime traffic entering and exiting Iranian ports, following the collapse of weekend peace talks in Pakistan. He also ordered the Navy to interdict any vessel that had paid a toll to Iran for passage through the waterway - a provision that creates an entirely new and legally untested exposure for shipowners, their insurers, and their cargo clients worldwide.
"I don't care if they come back or not. If they don't come back, I'm fine," he said when asked about more ceasefire talks while speaking to reporters."I think Iran is in very bad shape. I think they're very desperate."
"We understand this situation better than anybody and Iran is in very bad shape and, just so you understand, Iran will not have a nuclear weapon."
US Central Command confirmed the blockade would take effect from 10am eastern time Monday, applying to vessels of all nations trading with Iranian ports, but would not extend to ships transiting the strait itself to and from non-Iranian ports. That distinction - critical as a matter of policy - will require urgent interpretation by underwriters, port authorities, flag states and legal counsel across every major maritime market.
Lloyds List Intelligence has reported that two vessels heading towards the strait turned around as soon as Trump’s announcement was made.
To understand the additional complexity the blockade creates, it helps to understand the state of the market as it stood at the weekend.
Since hostilities began six weeks ago, the JWC has progressively expanded its listed high-risk zones to encompass Bahrain, Djibouti, Kuwait, Oman and Qatar - effectively converting the entire Arabian Gulf into a designated conflict area. Under the JWC framework, vessels entering a listed area must carry Additional Premium (AP) cover for that specific transit, paid above the annual baseline hull war risk policy. Pre-conflict, a transit AP through the strait ran at approximately 0.125 to 0.25 per cent of hull value. By early March, premiums for Strait of Hormuz transits had risen to between 1.5 and 3 per cent, with US, UK and Israeli-linked vessels paying closer to 5 per cent, according to Lloyd's List. For a Very Large Crude Carrier (VLCC) valued at around $138 million, that translates to indicative voyage premiums of between $10 million and $14 million per trip - against a pre-war baseline measured in hundreds of thousands of dollars.
The Lloyd's Market Association was at pains to clarify in a statement on 23 March that insurance itself had not caused the collapse in traffic. Cover remained available within the Lloyd's and London company market for vessels wishing to transit the strait. Of the main participants in the Lloyd's marine war market surveyed by the LMA in the week after hostilities began, 88 per cent retained appetite for hull war risks and over 90 per cent for cargo. The reason ships were not moving, the LMA said, was crew and vessel safety - not a lack of available cover.
Read next: The Iran War's hidden insurance crisis
The protection and indemnity (P&I) side of the market had been more disrupted. Major P&I clubs, including Gard, Skuld and NorthStandard, issued cancellation notices for the Persian Gulf in early March following the withdrawal of reinsurance for war-related extensions. The International Group of P&I Clubs announced that existing war risk coverage would become void as of 5 March, requiring new special coverage for ships entering the zone. Moody's, in a separate assessment, warned that the US government's subsequent maritime reinsurance programme lacked adequate liability cover, limiting its effectiveness in restoring traffic.
In an unprecedented use of sovereign financial capacity, the US International Development Finance Corporation (DFC) launched a maritime reinsurance facility in March, initially backed by $20 billion in rolling coverage with Chubb named as lead underwriter. The facility was structured to provide war hull, war P&I and war cargo cover for eligible vessels transiting the strait under conditions approved by the US government. Last week, the DFC doubled the facility's capacity to $40 billion by bringing in six additional American insurance partners - Travelers, Liberty Mutual, Berkshire Hathaway, AIG, Starr and CNA - alongside Chubb's existing commitment.
The eligibility criteria for the facility require applicants to disclose the vessel's origin and destination, the identity of major beneficial owners, the owner of the cargo, and the identity of lenders financing the vessel. That screening requirement reflects, in part, the concern that vessels with Iranian ownership or cargo links could attempt to use the facility - a concern that has now been made considerably more acute by Trump's interdiction order. A ship that has paid an Iranian toll is now at risk of seizure by the US Navy. Whether such a seizure constitutes a war peril, a government confiscation, or an excluded event under the facility's terms remains, as of publication, an open question.
The blockade announcement creates several distinct new complications layered on top of an already strained market.
The most immediate is the interdiction provision. Trump's order that the Navy seize any vessel that has paid Iranian transit fees introduces a new category of risk that sits awkwardly within existing marine war policy wordings. A seizure by a belligerent nation acting under claimed legal authority occupies a grey zone between war peril and government confiscation - the latter of which is typically excluded under standard hull war policies. Underwriters who have so far been pricing transit risk primarily around Iranian military action now face a scenario where vessels compliant with Iranian demands may be seized by American forces, and vessels attempting to comply with American demands may be targeted by Iran. The two sets of obligations are, for some vessels already in the strait, potentially irreconcilable.
The distinction between the blockade applying to Iranian port traffic and not to general strait transits will also require careful navigation. The International Energy Agency's February 2026 assessment noted that only Saudi Arabia and the UAE have operational pipeline bypass capacity, providing an estimated 3.5 to 5.5 million barrels per day in alternative export routes. That leaves approximately 14 to 16.5 million barrels per day of Gulf crude with no practical alternative to strait transit. For those cargoes, the question of whether their voyage triggers the blockade provisions will depend on routing and port of origin - creating a new documentation and notification burden for every cargo cover in the region.
For the London market, the JWC's existing designation framework was designed around the threat environment as it existed before Sunday. Whether the US naval blockade - involving a NATO ally operating under a claim of legal authority - requires a formal reassessment of designated areas, policy wordings or AP structures is a question that underwriters will be working through this week.
The stakes are large enough to justify that urgency. The IEA's 2025 data shows that approximately 15 million barrels of crude oil per day transited the strait - representing around 34 per cent of global crude oil trade. China was the single largest destination, receiving 37.7 per cent of all crude and condensate flows, followed by India at 14.7 per cent, South Korea at 12 per cent and Japan at 10.9 per cent. On the liquefied natural gas side, around 20 per cent of all global LNG trade transited the strait annually, with Qatar - whose Ras Laffan facilities were damaged by Iranian attacks in March - as the dominant exporter. European gas prices doubled in days following Qatar's force majeure declaration.
Before the war began, approximately 138 commercial vessels passed through the strait's two shipping lanes every day. The FT's tracking data recorded just 36 movements over the entirety of Saturday and Sunday combined. On the last Sunday before hostilities broke out, 172 transits were recorded in a single day.
The economic consequences are already visible in US inflation data, with consumer prices rising to 3.3 per cent in March - the highest in roughly two years - partly driven by energy costs. US petrol prices have exceeded $4 a gallon for the first time since 2022.
For the broader insurance market, the sustained energy price shock flowing from the strait's closure - now formalised and potentially deepened by a naval blockade - carries consequences well beyond specialist marine and war risk desks.
Property and liability underwriters face rising claims costs across a range of classes as energy-intensive industries absorb sustained input price inflation. Business interruption underwriters with exposure to manufacturing, logistics and petrochemical clients dependent on Gulf-sourced feedstocks are reviewing aggregations against what is now a conflict measured in weeks rather than days. Fitch Ratings flagged in March that the withdrawal of hull war risk cover in the Persian Gulf carries negative credit implications for US property and casualty insurers, given the interconnected reinsurance exposures flowing back through the system.
Political risk underwriters face a changed landscape as the US, in formally blockading a sovereign nation's ports, creates new sovereign risk dynamics for trade credit, export finance and investment covers across the region. The DFC facility's eligibility screening means that vessel owners and cargo clients with Iranian commercial relationships - even historical ones, through toll payment - now face a potential coverage question they did not have at the weekend.
The blockade is a military instrument with a commercial mechanism. For the insurance industry, which played a significant and underappreciated role in closing the strait well before Iran's navy formally did, the coming days will require rapid reassessment of an already stressed market at the point of maximum complexity.
