By: Ken Robinson
There is a quiet tension running through the Strait of Hormuz crisis. Missiles, drones, and naval escorts have dominated the headlines. But the mechanism that has done the most to slow trade is not kinetic.
It is contractual.
It is insurance.
In practice, the Strait of Hormuz can be closed without a single ship being sunk. If war risk coverage evaporates, ships cannot sail. Ports, lenders, charterers, and flag states will not accept the exposure. The sea lane becomes commercially non-viable, even if it remains physically navigable.
This is not new. What is new is the speed of the shutdown, the scale of the economic shock, and the emerging contest over who controls the insurance backstop when private markets retreat.
This contest now sits at the intersection of three systems: maritime security, energy flows, and global finance. It is where the United States, China, and Gulf states are beginning to treat marine insurance as an instrument of state power.
Backstory of Combat, Insurance, and Lloyds
As a combat embedded journalist over the past two decades, before deploying, I required “Lloyds insurance,” to mitigate the risk to myself, or my family. The shipping industry is no different, only its astronomically more expensive, as the stakes are higher.
For more than three centuries the world’s maritime economy revolved around one institution: Lloyd’s of London.
Founded in the late 1600s in Edward Lloyd’s coffee house near the Thames, the Lloyd’s marketplace became the financial nervous system of global trade. Merchants, shipowners, and financiers gathered there to price risk for voyages across an uncertain world.
Over time Lloyd’s evolved into the dominant marketplace for marine insurance, underwriting everything from merchant fleets to war risk coverage for tankers moving through contested waters.
For much of the modern era, if a ship crossed the ocean carrying oil, cargo, or LNG, there was a high probability that some portion of its risk ultimately ran through Lloyd’s.
That historical architecture collided this week with the realities of modern geopolitics.
The immediate trigger was the escalating Strait of Hormuz crisis, following U.S. and Israeli strikes on Iranian targets and subsequent Iranian retaliation.
The Strait of Hormuz carries roughly one fifth of global oil supply, making it the most important maritime energy choke point in the world. Within days of the escalation, several tankers were struck and commercial ship traffic collapsed by more than 70 percent. More than 150 vessels reportedly waited outside the strait as crews and owners reassessed the risks. Source: https://apnews.com/article/5b60e82ef2fc68e2b43aa570a32404dd
The insurance system reacted quickly. Protection and Indemnity clubs and marine insurers — including firms linked to the London market — issued cancellation notices for war-risk coverage in the Gulf and surrounding waters. The cancellations were scheduled to take effect within days, reflecting the rapidly deteriorating risk environment. Source: https://www.reuters.com/world/middle-east/ship-insurers-cancel-war-risk-cover-due-iran-conflict-2026-03-02/
This move did not technically represent a single decision by Lloyd’s itself. Lloyd’s operates as a marketplace of syndicates rather than a centralized insurer. But the practical effect was similar. When the core war-risk insurance market withdraws coverage, shipowners cannot obtain the legal or financial protection required to transit the region.
Without insurance, most commercial vessels simply cannot sail.
In effect, the Strait of Hormuz was not closed solely by missiles or naval forces. It was closed by the insurance market.
How the Insurance Switch Works
Marine insurance is layered. Liability coverage is typically provided by Protection and Indemnity clubs. War risks are generally treated as a separate class that can be excluded, repriced, or cancelled on short notice when threat levels spike. In this crisis, major clubs and insurers issued cancellation notices effective March 5, reflecting the difficulty of pricing exposure inside and around Iranian waters.
Reporting on these cancellations and the immediate shipping effects can be found in Reuters and the Guardian.Reuters and The Guardian.
The result was a rapid collapse in transits. Ships gathered outside the strait, freight costs spiked, and the physical threat picture became less important than the financial ability to operate. In effect, underwriting capacity became a form of maritime blockade.
The U.S. Move: Sovereign Guarantees as a War Risk Backstop
President Trump publicly said the United States would step in, using the U.S. International Development Finance Corporation to provide political risk insurance and guarantees for maritime trade, and that the U.S. Navy could escort tankers (like Operation Earnest Will, in the late 80’s) if necessary.
The plan signals a shift from relying on private insurance markets to deploying sovereign credit as a stabilizer for global energy flows.
Core details have been reported by Reuters and other outlets.Reuters.
The implementation details remain contested. London brokers and insurers have described uncertainty about scope, pricing, eligibility, and whether guarantees would cover hull, cargo, liability, or only a narrow set of political risks. Premiums have continued to rise, suggesting the announcement alone has not re-opened the market.
The Financial Times has reported the scale of premium increases and confusion over the mechanics.Financial Times.
Why Insurance is Economic Warfare
In a conventional war, a navy blocks a strait by force. In modern gray-zone conflict, an adversary can raise the perceived risk until insurers withdraw, then watch commerce self-interdict. The targeting does not need to be continuous. It only needs to be credible and episodic.
The market will do the rest.
This is why insurance behaves like an economic weapon. It can choke energy exports without occupying territory. It can impose costs on rivals without firing at their flagships. And it can trigger second-order effects across shipping, inflation, and financial stability.
In the current crisis, the pricing of war risk has moved faster than military responses. Shipping rates and premiums surged even as naval forces repositioned. This creates a time advantage for the actor that can manipulate threat perception and maintain ambiguity about attribution.
China’s Interest: De-risking Dependence on Western Underwriting
China’s core vulnerability is not theoretical. It is arithmetic. Beijing is heavily exposed to Gulf energy flows. As the strait destabilized, China called for protection of vessels and de-escalation, highlighting the direct economic exposure to shipping disruption.
The Guardian has reported China’s public call for vessel protection amid soaring costs.The Guardian.
But China’s strategic concern runs deeper. For decades, much of the world’s marine war risk capacity has been linked to Western insurance and reinsurance markets, including London. In a crisis that implicates Iran, the United States, and Israel, Beijing cannot assume that underwriting, claims handling, sanctions compliance, or policy interpretation will remain politically neutral.
That is why China and its financial ecosystem have been building alternative capacity. In late 2025, Hong Kong launched a marine war risks insurance pool backed by Hong Kong and mainland Chinese insurers, explicitly framed as a way to reduce reliance on Western markets. This is not a complete replacement for the London market. It is a strategic wedge, designed to ensure that Asian shipowners have an option when Western capacity tightens or becomes politically constrained.
Lloyd’s List reported the launch and intent of the Hong Kong Marine War Risks Insurance Pool.Lloyd’s List.
Hong Kong’s Insurance Authority also publicly welcomed the initiative to bolster resilience.Hong Kong Insurance Authority.
The direction of travel is clear. China is trying to ensure that a future Hormuz-like shock does not allow a Western insurance chokepoint to become a de facto lever over Chinese energy security.
The Gulf States: From Producers to Risk Managers
The Gulf monarchies sit on the other side of the same chokepoint. They do not only export energy. They underwrite stability across their ports, terminals, and sovereign balance sheets. When marine insurance collapses, Gulf producers lose revenue, and global buyers search for alternative supply. This creates pressure for Gulf states to evolve from commodity exporters into active risk managers.
In the near term, Gulf states can offer security cooperation, port hardening, and route management. Over the medium term, a more significant possibility is the development of Gulf-backed risk facilities, whether through sovereign wealth participation in insurance capacity, regional pools, or co-insurance structures that keep premiums from becoming prohibitive in recurring crises.
There is no public evidence yet that a Gulf sovereign insurance backstop is operational for Hormuz traffic in this crisis. But the incentives point in that direction. If insurers and reinsurers treat the Gulf as permanently higher risk, producers will eventually face a choice: accept a structural discount on their exports, or finance mechanisms that reduce the market penalty.
What This Means for London
London remains central to the global specialty insurance system. But the Hormuz episode reinforces a trend that has been building since the Red Sea disruptions of 2023 and 2024. War risk markets are becoming a frontline of geopolitics. And states are increasingly willing to substitute sovereign guarantees for private capacity when energy security is at stake.
This does not mean Lloyd’s is finished. It means that its dominance is no longer insulated from strategic competition. If the United States normalizes the use of federal guarantees for maritime trade in crisis, and China builds alternative pools to reduce reliance on Western underwriting, then the London market’s role shifts from monopoly-like centrality to contested relevance in certain theaters.
Assessment and Forecast
A reasonable near-term forecast is that private insurers will return once the conflict stabilizes and premiums rise to a level that attracts capital. Markets rarely abandon profitable routes for long. But the re-entry will likely be at higher prices and tighter terms, with more exclusions and faster cancellation triggers.
Over the next 12 to 24 months, the more durable change may be institutional. The United States has signaled that it may deploy insurance guarantees as a strategic tool. China has already built early-stage alternatives to Western war risk capacity.
Gulf states have rising incentives to participate directly in risk financing rather than merely absorbing market shocks.
If these trends continue, marine insurance will look less like a neutral commercial service and more like a strategic domain. In that world, the ability to backstop risk is not simply a financial product. It is a form of influence over energy supply chains, shipping routes, and crisis escalation.
The strategic warning is that this tool can cut both ways. If states politicize underwriting too aggressively, they may fragment the maritime insurance system into blocs. That fragmentation would not only raise costs. It would weaken crisis de-escalation, because every incident at sea would be interpreted through competing financial and legal regimes.