Insurance Companies Block Strait of Hormuz Ships, Not Iran
Insurance companies have stopped covering ships passing through the Strait of Hormuz due to war risks, effectively blocking maritime traffic. Iran says it will allow "non-hostile vessels" to pass if they coordinate with Iranian authorities.
Insurance companies have become the unlikely power brokers in the Middle East by refusing to cover ships traveling through the Strait of Hormuz. War risk insurance protects shipping companies if their vessels are damaged or seized during conflicts.
The strait is a narrow waterway between Iran and Oman that handles about one-fifth of global oil shipments. Iran has threatened to disrupt shipping in response to international pressure, including a temporary partial closure earlier this month.
On Tuesday, Iran's UN mission said it would permit "non-hostile vessels" to pass through the strait, but only if they coordinate with Iranian authorities first. This creates a diplomatic checkpoint that many shipping companies want to avoid.
International law prohibits countries from arbitrarily closing straits used for global navigation. The 1958 Geneva Convention, which Iran signed, specifically protects international shipping routes like the Strait of Hormuz.
When insurance companies label an area too risky to cover, ships effectively cannot sail there. Most ports and shipping contracts require full insurance coverage before vessels can operate.
About 20% of the world's oil passes through this narrow waterway. When ships can't get insurance, they can't sail, which drives up oil prices and costs for everyday goods worldwide.
Watch for oil price changes and whether more shipping companies suspend Strait of Hormuz routes.
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