The risk of regional escalation in the Israel-Iran war includes the risk that the conflict poses one of the most critical arteries of global commerce: the Strait of Hormuz.
Roughly one-third of all seaborne oil and a significant portion of liquefied natural gas (LNG) passes through this narrow, 33.8km-wide waterway daily, reported Maritime Cyprus, an international maritime news forum.
Ships that continue to flow through the Strait do so under an increasingly dark cloud. Insurers have already raised war-risk premiums on vessels entering the Gulf. Charterers are pressing for escalator clauses in freight contracts. Maritime operators are reviewing rerouting protocols—an expensive proposition that can double voyage lengths and spike fuel consumption.
Iran has long threatened to close Hormuz in response to existential threats. Though a full closure remains unlikely, Iran doesn’t need to seal it off to cause disruption. A single mine, drone, or anti-ship missile incident could prompt insurers to blacklist the region, sending tanker traffic around the Cape of Good Hope. With the Red Sea already compromised by Houthi attacks, the West's capacity to guarantee maritime security is stretched thin.
Shipping costs are poised to rise more sharply. War-risk insurance premiums, once negligible, could now exceed 0.5% of vessel value per voyage.
The rerouting options are equally expensive. A diversion around the Cape of Good Hope adds approximately 6,000 nautical miles and up to 14 days of transit time. Fuel and crew costs rise accordingly, not to mention congestion risks at alternate ports and canals.
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