Hormuz Crisis 🚨: Global Trade at Risk?! 🚢

FORMATION OF THE PERSIAN GULF STRAIT AUTHORITY
The Supreme National Security Council of Iran has established a new authority, the Persian Gulf Strait Authority (PGSA), designed to provide “real-time updates” on operations and developments within the Strait of Hormuz. This strategic move underscores Iran’s increasing control over this critical waterway, which carries approximately 20% of global oil and gas shipments.

INSURANCE OFFER AND CRYPTOCURRENCY PAYMENTS
In a bid to further solidify its control, Iran is offering insurance to ships transiting the Strait of Hormuz, with payments slated to be conducted through cryptocurrencies like Bitcoin. This initiative, revealed by Iran’s Fars news agency, follows a period of collecting ad hoc transit fees from vessels utilizing the waterway. The PGSA’s insurance coverage begins from the moment of confirmation, providing shipowners with a signed receipt.

TECHNICAL CHALLENGES AND INTERNATIONAL REACTION
The proposed insurance system faces significant hurdles, primarily due to international sanctions that severely restrict Iran’s access to global financial and insurance markets. Khalique, head of the Liverpool John Moores University Maritime Centre, highlights the challenges, stating that without credible reinsurance, shipowners may doubt claim payouts due to cybersecurity risks and geopolitical tensions. The use of cryptocurrency adds another layer of complexity, as many governments associate it with sanctions circumvention and money laundering concerns.

TRANSIT FEES AND GLOBAL OPPOSITION
Prior to the US-Israel war on Iran, Tehran had already begun collecting transit fees from commercial vessels, with payments reaching up to $2 million per voyage. Globally, the concept of any fee for passage through the Strait of Hormuz has been universally rejected, with the US Department of State explicitly stating that international waterways must remain open to global shipping. China has also voiced opposition to any restrictions on free navigation.

INCREASED INSURANCE PREMIUMS
Since the commencement of the war nearly three months ago, global maritime insurers have dramatically increased war-risk premiums for ships entering the Gulf region. Within days of the initial US-Israeli strikes, insurance costs had risen as much as fivefold. Key insurers like Gard, Skuld, NorthStandard, and the American Club cancelled war-risk coverage, leading to cautious behaviour among shipping companies.

REINSURANCE SUPPORT AND CHUBB’S INVOLVEMENT
To address the increased risks, the US government established a $20 billion maritime reinsurance programme, supported by Chubb, offering war-risk cover for hulls, cargo, and liability. This initiative aims to restore commercial shipping through the Strait of Hormuz. However, shipping companies remain cautious, citing crew safety risks and fears of attacks and seizures.

US NAVAL BLOCKADE AND SANCTIONS RISKS
The US has implemented a naval blockade of all ships coming from or going to Iranian ports, further complicating matters. The US has also warned companies that payments to Iran for safe passage through Hormuz could expose them to sanctions.

POTENTIAL ACCEPTANCE OF IRANIAN INSURANCE
Academic Khalique suggests that acceptance of the Iranian insurance plan is likely to be “limited and highly selective.” He posits that countries wary of Western sanctions, such as China or smaller trading states, may consider Iranian insurance if it lowers costs or guarantees passage. However, most maritime powers and shipping firms are unlikely to embrace it, citing the dependence on trust, enforceability, and internationally recognised legal standards.

INTERNATIONAL DIPLOMATIC EFFORTS
UN Secretary-General Antonio Guterres has called for an immediate opening of the passage, urging no tolls and “no discrimination.” Following meetings between US President Donald Trump and his Chinese counterpart, Xi Jinping, the White House stated that China had “made clear China’s opposition to the militarisation of the strait and any effort to charge a toll for its use.”