Merchant Ships Stranded as Strait of Hormuz Crisis Collapses Insurance Cover
Following US-Israeli military strikes on Iran in late February 2026 — including the killing of Iran's supreme leader — Iran's Islamic Revolutionary Guard Corps (IRGC) issued warnings effectively prohibiting vessel passage through the Strait of Hormuz.
Over 150 merchant ships anchored outside or upstream of the Strait, refusing to transit due to the threat of attack; shipping traffic through the Strait fell by approximately 70% initially and then approached a near-total halt.
Marine insurance underwriters cancelled war risk coverage for vessels transiting the Persian Gulf, making it effectively impossible for commercial shipping to operate in the region without prohibitive financial exposure.
War risk premiums — normally around 0.2% of a vessel's value — spiked to approximately 1% of vessel value for a single voyage, adding hundreds of thousands of dollars to each shipment (e.g., a $100 million tanker's voyage premium rising from ~$200,000 to ~$1 million).
At least five tankers were damaged in attacks; two crew members were killed.
Insurance companies are seeking to renegotiate the terms of their coverage for ships serving the Persian Gulf, with many simply declining to extend coverage at any price.
The crisis has direct consequences for India: approximately 50% of India's crude oil and LNG imports transit the Strait of Hormuz.
The Strait of Hormuz: A Critical Maritime Chokepoint
The Strait of Hormuz is a narrow waterway connecting the Persian Gulf to the Gulf of Oman and the Arabian Sea. It is the world's most important maritime oil transit chokepoint, through which a significant share of globally traded hydrocarbons passes daily.
With the Strait effectively closed to commercial shipping, the stranded vessels upstream represent a physical manifestation of what energy security planners have long called the "Hormuz scenario" — a disruption that cascades into global energy markets with immediate consequences.
Marine War Risk Insurance: How It Works and Why It Matters
War risk insurance is a specialised category of marine insurance that covers vessels, cargo, and crew against losses arising from war, acts of terrorism, piracy, and political violence. It is distinct from standard P&I (Protection & Indemnity) and hull insurance.
The mass cancellation of war risk cover by insurers — not merely the threat of attack — is what operationally halted Strait of Hormuz shipping. The insurance mechanism functions as an automatic market brake in geopolitical crises.
India's Energy Security and the Hormuz Dependency
India's energy security calculus has always included the Hormuz risk. As the world's third-largest oil importer, India's economic stability is directly tied to the uninterrupted flow of crude oil through this waterway.
The Hormuz closure put India's strategic petroleum reserve and diversification strategies to the test simultaneously. The 30-day US waiver for Russian crude was partly a direct response to the supply emergency created by the Hormuz disruption.
UNCLOS and Freedom of Navigation in Straits
Under the United Nations Convention on the Law of the Sea (UNCLOS), international straits used for international navigation are subject to a specific regime of "transit passage" — a right that coastal states cannot suspend.
Key Details
- Article 37-44, UNCLOS: Straits used for international navigation between one part of the high seas or EEZ and another part are subject to the right of transit passage for all ships and aircraft.
- Transit passage cannot be suspended by the coastal or bordering state, unlike innocent passage through territorial waters (which can be temporarily suspended under Article 25(3) for security reasons).
- Iran and Oman are the two states bordering the Strait of Hormuz. Iran has historically threatened to close the Strait in response to sanctions or military pressure, but doing so would violate UNCLOS.
- The US Fifth Fleet, based in Bahrain, has the mandate of ensuring freedom of navigation in the Persian Gulf and the Strait of Hormuz.
- India has supported freedom of navigation principles internationally, including through Quad partnerships, though it has been careful not to sign on to specific US-led freedom of navigation operations.
Iran's IRGC warnings effectively asserting closure of the Strait directly contradicted the UNCLOS transit passage regime — and the global response (insurance pullback, shipping halt) showed how geopolitical leverage can achieve what formal legal closure cannot.
- Strait of Hormuz width at narrowest: 33-39 km; shipping lanes: two lanes of 3.2 km each
- Daily oil transit through Strait (pre-crisis): approximately 20-21 million barrels
- Share of global petroleum trade: approximately 20%
- Vessels stranded upstream of Strait: over 150 ships (as of early March 2026)
- Tankers damaged: at least 5; crew killed: at least 2
- War risk premium spike: from ~0.2% to ~1% of vessel value per voyage
- Example cost increase: $100m tanker voyage premium: $200,000 → ~$1 million
- India's Hormuz dependency: approximately 50% of crude oil and LNG imports
- India's SPR coverage: 17-18 days (locations: Visakhapatnam, Mangalore, Padur)
- UNCLOS transit passage provision: Articles 37-44
- Shipping traffic decline through Strait: approximately 70% initially, approaching near-total halt