Shipping unsure on Trump’s Hormuz revival plan

• Naval escorts and insurance pledge
• US ‘sinking entire’ Iran navy
• Protection of all vessels questioned

Seventeen Iranian naval vessels have been sunk, the commander of US Central Command said on Wednesday, after President Donald Trump pledged naval escorts and government-backed insurance to revive oil and trade flows through the Strait of Hormuz.

The shipping industry met the announcement with caution, unsure the plan can protect tankers at scale, industry experts told AGBI.

One insurance executive said the scheme could disrupt the dominance of the Lloyd’s of London marketplace, a leading provider of maritime insurance cover.

The US-Israel conflict with Iran has effectively closed one of the world’s most critical energy routes through which about a fifth of global oil supplies transit – about 20 million barrels per day. The closure has pushed crude up about 15 percent since strikes began at the weekend. 

Even a brief standstill for ships outside the strait risks driving up fuel costs worldwide, squeezing economies dependent on Gulf energy and testing the limits of global trade, analysts said.

Admiral Brad Cooper, commander of US Central Command, said in a broadcast that US forces “are sinking the Iranian navy … the entire navy”, including its most operational Iranian submarine “that now has a hole in its side”.

“For decades the Iranian regime has harassed international shipping,” he said. “Today there is not a single Iranian ship underway in the Arabian Gulf, Strait of Hormuz or Gulf of Oman, and we will not stop.”

Further reading:

• Hormuz tensions snarl trade, causing ship diversions
• Frank Kane: In any Trump strike on Iran, Hormuz is the real prize
• John Manners-Bell: What a US-Iran breakdown means for shipping

Trump said the US Navy would escort tankers through the strait if necessary “as soon as possible” and the Development Finance Corporation (DFC) – the international investment arm of the US government – would offer political risk insurance and financial security guarantees at “a very reasonable price”.

“No matter what, the United States will ensure the free flow of energy to the world,” Trump posted on social media.

Jakob Larsen, chief safety and security officer at shipping company Bimco, said that Trump’s plan “sounds interesting” but protecting all vessels may not be feasible.

“Depending on the details of the proposal it might help tip the risk-reward ratio and stimulate more shipowners to resume operations in the high-threat area,” he said.

“That said, providing protection for all tankers operating in areas currently threatened by Iran is unrealistic as this would require a very high number of warships and other military assets.”

But one marine insurance executive said Trump’s plan could put the DFC in a position to compete against Lloyd’s of London – the heavyweight London insurance marketplace that dominates maritime coverage – after the latter refused some war-risk cover.

“Billions in premiums could go to the US instead [of the UK],” said the person, who declined to be named.

Bulk carrier sailings through the Strait of Hormuz during the first three days of March fell to under a third of the levels seen in the previous week, according to Bimco.

More than five ships have been attacked since the fighting began.

China’s Cosco Shipping Lines became the latest to join the growing list of container liners suspending all new bookings through the Strait of Hormuz until further notice.

Marco Forgione, director general of the Chartered Institute of Export and International Trade, said delays would hit supply chains and cause price hikes, with effects lasting through the end of the quarter and potentially into early summer.

Analysts warned the disruption was beginning to bite at oil production. 

With storage space filling rapidly, curtailments have already been reported in Iraq.

“Such news is likely to add to the prevailing supply concerns, adding further fuel to the energy shock in the very near term,” Norbert Rücker, head of economics and next generation research at Julius Baer, said.

S&P Global Ratings on Wednesday raised its assessment of the conflict to “severe,” warning that the near-total suspension of shipping through the Strait of Hormuz and surging oil and gas prices could transmit credit strain across sectors.