Marine insurers move to ban payments to Iran for Hormuz transits
A new Lloyd's Market Association clause lets underwriters cancel cover if a shipowner is found to have paid a toll to pass through Iranian-controlled waters
Underwriters at Lloyd's Market Association have introduced an additional, optional clause that can be inserted into policies covering passages through the Strait of Hormuz, allowing insurers to cancel cover if it emerges that a shipowner has paid a toll to Iran for safe transit. The clause is intended to protect insurers from compliance risk, though it could also discourage neutral shipowners from using the route through Iranian-controlled waters, where vessels have generally not been targeted by Iranian forces.
The Islamic Revolutionary Guard Corps Navy oversees Iran's section of the strait, and the IRGC is designated a foreign terrorist organisation by the United States, meaning any payment made through Iran's administrative body for strait passage carries significant compliance risk for shipowners and their insurers. Iran is not currently charging vessels for transit, but its leaders have expressed clear interest in eventually turning passage through the waterway into a revenue stream, with any such charges likely to be structured as a service fee rather than an explicit toll given the questionable legality of tolling an international strait.
A spokesperson for the Lloyd's Market Association said the new clause sets out a clear contractual position for insurers and insureds on the acceptability of such payments, developed in response to concerns about applicable sanctions and terrorism legislation in cases where insurers become aware, or through reasonable due diligence ought to become aware, that a payment has been made. Under the clause, insurers will not cover any such payment, and where one has been made, cover for the relevant vessel will cease entirely due to the risk of breaching sanctions or terrorism legislation in the United States, the United Kingdom or the European Union.
The clause arrives as the broader cost of insuring Gulf transits continues to climb, with war risk premiums for Gulf coverage reported in the low single-digit percentage of hull value earlier this month, and pricing expected to move higher still following further attacks in the region. In the southern Red Sea, where separate attacks on Saudi-linked shipping have also driven up costs, premiums have likewise risen to a level that can add well over a million dollars to the cost of a single transit for a newer very large crude carrier.
With insurance costs climbing across both the Red Sea and the Strait of Hormuz, and insurers now moving to formally block a potential future revenue channel for Iran, shipowners operating in the region face an increasingly complex set of financial and compliance pressures layered on top of the physical security risks already shaping decisions about which routes to sail.
