The current war demonstrated the bureaucratic dimensions to the closure of critical chokepoints: if insurance premiums can be made to rise sufficiently, travel through waterways such as the Strait of Hormuz can grind to a halt without the need to capture or sink vessels. This experience confirms the importance of a proactive policy of insurance underwriting by the adversely affected states as part of a holistic strategy for maintaining the freedom of navigation.
In early March, after decades of threatening to close the Strait of Hormuz, Iran made good on the threat: the daily traffic of approximately 140 ships collapsed to fewer than a handful, leading to a huge build-up of ships on either side of the chokepoint waiting for a safe right of passage. Interestingly, while Iran did harass and attack several vessels, the level of violence was considerably lower than that seen during the highly disruptive 1980s “Tanker Wars”.
A key reason for this was the role of maritime insurance. Given the large value of cargo – and the existence of non-trivial baseline levels of risk due to natural disasters, extreme weather, navigational errors and so on – it is not commercially viable for ships to travel without sufficient insurance. The credible threats ships were now facing at the hands of Iranian drones, missiles, mines and other assets led to insurers increasing premiums to levels that would render travel through the strait unprofitable. The rational response from ships and their crews was to remain out of harm’s way and wait for a sufficient improvement in the security situation before trying to cross.
US President Donald Trump’s initial response was to consider using his country’s navy to forcibly open the strait, thereby enabling a resumption of commercial crossings. However, this plan was shelved for two reasons.
The first was military: unlike the aforementioned Tanker Wars, the threats that ships faced today were primarily airborne drones and missiles, which are extremely difficult to intercept at a high enough rate for them to be accommodated as background risk. In contrast, during the 1980s, sea convoys simply had to defend against naval threats from large combat vessels to small attack craft, where the overwhelming capabilities of the US Navy would have been sufficient.
The second was bureaucratic: while the prospect of their clients’ ships being escorted by the mighty US Navy may have been of some comfort to insurance underwriters, it was not enough to engineer the kind of drop in insurance premiums that would allow profitable passage through the Strait for commercial cargo.
Mr Trump asked the US International Development Finance Corporation (DFC) to provide quasi-sovereign insurance as a substitute for the private insurance the maritime community depended upon. Specifically, the DFC was to provide cover at “reasonable rates” in conjunction with the US Navy’s actions, with the goal of overcoming any residual reluctance commercial vessels had toward traversing Hormuz.
Unfortunately, this initiative had several problems. First, the DFC did not have the infrastructure to deal with such claims, creating a legitimate fear from prospective clients that any payout would be mired in a bureaucratic swamp for years. In contrast, elite insurers, such as Lloyd’s of London, already have systems in place for immediate payouts in case of a catastrophe. Beyond this, the DFC’s statutory cap would have been insufficient to cover the volume of traffic necessary for the resumption of normal traffic, and it did exclude environmental liability (such as oil spills), making it fundamentally inadequate.
If and when the current crisis subsides, GCC countries could move to plug this indemnity gap proactively to prevent a recurrence of the insurance-induced de facto closure of the strait. In particular, they should consider establishing state-backed insurance funds that are ready to act when called upon during a crisis. Critically, they should already have the requisite infrastructure to ensure swift payouts when necessary, as well as possessing sufficient liquidity and coverage to satisfy clients. These steps would be in marked contrast to the fundamentally reactive nature of the US initiative in March 2026, which ultimately tripped up due to insufficient prior scenario planning.
Notably, such efforts would need to be in tandem with enhanced defence against Iranian threats on the physical side of the equation. That could include a new generation of countermeasures that blunt the threat that Iran’s asymmetric weapons pose.
Notably, the recent US “distant” blockade of Iranian ports does not alter the long-term need for these solutions, since it constitutes a transient element of a one-off negotiation with Iran. In particular, given how many naval assets are required for its implementation – and the time needed to co-ordinate them – the blockade cannot be part of a ready-to-roll out setup that is designed to rapidly assuage commercial fears associated with threats to the strait.
Ultimately, the 2026 crisis has proven that in modern asymmetric warfare, the market is as significant as the strait itself. For the Gulf countries, establishing a sophisticated, pre-funded sovereign insurance framework could become a vital component of defence. By merging kinetic protection with fiscal resilience, the GCC can prepare against geopolitical blackmail. Freedom of navigation requires more than just a clear sea lane; it requires institutional resolve to ensure that the risks of the journey never outweigh the necessity of the arrival.
