Shipping through the Strait of Hormuz has nearly stopped as operators and insurers pull back, with the waterway carrying about a fifth of the world oil liquids now effectively closed to normal traffic. The pullback follows a string of incidents, including two oil tankers disabled by explosions, an LNG tanker said to have hit a mine, and a strike claimed on navigation systems on an Omani island.
Why it matters
The insurance market is the mechanism that stops the ships. When underwriters raise premiums or withdraw cover, owners will not send vessels into a waterway where the next incident is a matter of when, not if. The result is a strait that is open on the map and closed in practice, with the oil that normally flows through it looking for another route.
Buyers are already adjusting. India has demanded unimpeded shipping through the strait, and buyers are looking for alternatives, with African liquefied natural gas exports projected to soar as buyers flee Hormuz. The shift shows how quickly a security crisis in one waterway can redraw energy trade routes, and how fast the cost of the crisis spreads beyond the Gulf.
What happens next
The diplomacy has not reopened the waterway. The Abu Dhabi talks produced a prisoner exchange but no ceasefire, and President Trump said the United States does not need a deal with Iran. The International Energy Agency said the oil market is set to return to a surplus this quarter, which could cap prices, but a surplus elsewhere does not move ships through Hormuz.
For now, the strait is the story and the ships are staying away. Until the attacks stop and the insurers return, every claim from Hormuz will move oil prices, and the next incident, not the next round of talks, is what the market is waiting for.
The insurance market is the mechanism that stops the ships. When underwriters raise premiums or withdraw cover, owners will not send vessels into a waterway where the next incident is a matter of when, not if. The result is a strait that is open on the map and closed in practice.
