War risk cover becomes the Gulf's decisive constraint

Rising war risk premiums and tightening insurance cover may now pose a greater obstacle to Gulf shipping than missiles or blockades. Premiums for transits of the Strait of Hormuz have surged into double digits as hostilities between the United States and Iran escalate alongside Houthi attacks, and brokers report that underwriters are scrutinising Saudi-linked voyages, with some declining cargoes tied to Saudi ports and interests altogether.

The more consequential development is what underwriters are contemplating next. Market participants report that London underwriters are considering restricting war risk cover for Saudi-related business in the Red Sea. Should such restrictions spread, insurance availability would become as decisive as the security situation itself in determining which ships sail where. A vessel that cannot obtain cover does not usually sail regardless; the charterer, the financier and the flag state all have an interest in it staying put.

Neither Hormuz nor Bab el-Mandeb has been formally closed. That distinction matters legally, because a formal closure triggers a different set of contractual consequences, but it has become largely academic in commercial terms. Military activity, political uncertainty and rising premiums have between them reduced traffic to a fraction of normal levels, achieving through cost and doubt what a declared blockade would achieve through force. Iran has compelled many ships to follow its designated transit routes, while Houthi strikes have expanded from Israel-linked shipping to Saudi energy exports.

The conflict is increasingly defined by commercial confidence rather than physical closure. Operators are choosing to avoid routes rather than being forced away from them, which is a distinction with real consequences for how the disruption ends. A physical blockade lifts when the blocking force withdraws. A collapse in confidence lifts only when owners, charterers and insurers each independently conclude that the risk has passed, and those judgements tend to lag the underlying situation by a considerable margin.

Markets can adapt to disruption; uncertainty is harder to price and harder to manage. With instability also affecting the Black Sea, the cumulative pressure on energy flows and supply chains is mounting across three separate theatres at once. The question facing shipping may no longer be where the next attack occurs, but whether insurers remain willing to cover the voyage at all.