Strait Of Hormuz Reopening Won't Mean Cheaper Shipping As Insurance Premiums Surge

2026-05-03 04:12:56

(MENAFN- Khaleej Times) Even if commercial traffic resumes through the Strait of Hormuz in the coming weeks, global shipping costs are unlikely to fall quickly as war-risk insurance premiums remain sharply elevated and insurers demand months of sustained stability before restoring normal cover.

Industry estimates suggest that premiums, which averaged about 0.25 per cent of vessel value before the conflict, have surged to between 3 per cent and 8 per cent, translating into insurance bills of $3 million to $8 million for a single large tanker transit.

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The persistence of elevated insurance costs underscores how reopening the world's most critical oil corridor will not immediately restore normal trade flows. Maritime insurers and shipping associations say mine-clearance uncertainty, military escort requirements and lingering geopolitical risk will continue to constrain traffic even after navigation resumes.

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The Strait of Hormuz carries roughly 17 million barrels per day of crude and condensates - nearly one-fifth of global consumption - and about 20 per cent of global LNG trade, according to the US Energy Information Administration. The International Energy Agency has described the disruption triggered by the conflict as the largest oil-supply shock in modern market history, highlighting the corridor's systemic importance to global energy security.

For Gulf exporters such as the UAE, the crisis has reinforced the strategic value of alternative export infrastructure, particularly the 1.5 million-barrel-per-day Habshan–Fujairah pipeline, which enables shipments to bypass the Strait and maintain continuity of flows during maritime disruptions.

Mine clearance delays

Even after a formal reopening, shipping volumes through Hormuz are expected to recover only gradually. US defence officials estimate that clearing naval mines across the waterway could take up to six months, reflecting both operational complexity and uncertainty about the number and placement of explosives.

Jakob Larsen, head of maritime security at BIMCO, warned that residual mine risks alone could delay a full restoration of commercial traffic.

“A mine-clearance effort will most likely be needed to fully reopen the Strait,” Larsen said, noting that confined navigation corridors will restrict throughput even after safe passage resumes.

Because shipping lanes are only about 3 km wide in each direction, even minor hazards can significantly reduce traffic capacity and increase the need for escorts.

Insurance costs surge

Marine insurers say the decisive factor in restoring confidence is not reopening itself but whether risks become predictable again.

Oscar Seikaly, chief executive of NSI Insurance Group, said underwriters require sustained evidence of stability before pricing can normalise.

“The market can insure volatility, but it struggles to insure uncertainty,” he said, adding that insurers need predictable rules of engagement and consistent freedom of navigation before restoring full coverage.

Munro Anderson, director of marine strategy at Vessel Protect, said a durable ceasefire and the absence of vessel seizures are essential conditions for underwriting capacity to return.

Even under improved conditions, premiums are unlikely to return quickly to pre-conflict levels, suggesting shipping through Hormuz could remain structurally more expensive well into the recovery phase.

Trade routes shift

The disruption has already forced refiners in Asia - the largest consumers of Gulf crude - to draw on inventories, diversify supply sources and increase purchases from Atlantic Basin producers.

Fatih Birol, executive director of the International Energy Agency, warned that disruptions of this scale typically reshape trade flows long after hostilities subside.

“Energy security concerns are reshaping trade routes and investment priorities,” Birol said in public remarks assessing the impact of the conflict on global markets.

Shipping associations also warn that convoy routing along narrow, safe corridors near coastlines could prevent the Strait from accommodating normal vessel volumes in the near term, prolonging delivery delays and volatility in freight rates.

UAE export resilience

For the UAE, the crisis has highlighted the importance of infrastructure investments designed specifically to mitigate Hormuz-related disruptions.

The Habshan–Fujairah pipeline enables a significant share of Abu Dhabi crude exports to reach the Gulf of Oman without transiting the Strait, reinforcing the country's role as one of the region's most resilient suppliers during periods of geopolitical tension.

Analysts at S&P Global Commodity Insights note that exporters with alternative routing capacity are better positioned to maintain market share during shipping disruptions and respond flexibly to tanker availability constraints and insurance cost spikes.

Recovery takes time

Insurers say reopening alone will not restore confidence unless it is followed by a sustained period without attacks, seizures or new mining incidents.

Seikaly said underwriters typically require clear evidence that a single incident would not trigger renewed escalation before expanding coverage across high-risk corridors.

“They need to see consistent freedom of navigation over time,” he said.

Until that happens, the Strait of Hormuz is likely to remain navigable but not normal - a distinction that will keep insurance premiums elevated, freight costs volatile and global energy markets sensitive to even minor security developments in the Gulf.