The Strait Isn't Closed. The Insurance Is.
On February 28, the United States and Israel launched coordinated strikes on Iran. The US called it Operation Epic Fury. Israel called it Operation Roaring Lion. Whatever you call it, the operation killed Ayatollah Ali Khamenei, targeted military commanders and facilities across the country, and triggered immediate Iranian retaliation against US bases and allied nations across the Gulf. As of this writing, strikes are ongoing. Trump has indicated they will continue through the week.
Iran responded with missiles and drones aimed at Israel, the UAE, Qatar, Bahrain, Saudi Arabia, Kuwait, and Jordan. Three people were killed in the UAE. A fire broke out at Dubai’s Jebel Ali Port from intercepted missile debris. Kuwait’s port of Shuaiba suspended operations. Bahrain shut down Khalifa Bin Salman Port. This is not a contained event. This is a regional war.
But the question consuming energy markets right now is not about the bombs. It is about a 21 mile wide stretch of water between Iran and Oman.
The Strait of Hormuz: What the Data Actually Shows
Social media is flooded with claims that the IRGC has “closed” the Strait of Hormuz. The reality is more complicated and, for energy markets, more consequential.
Here is what we know from primary sources.
The IRGC broadcast VHF radio warnings to commercial vessels declaring the strait closed to all traffic. These warnings have been reviewed and confirmed as credible by Lloyd’s List and multiple tanker and security officials. However, Iran has not formally declared a blockade. Iranian Foreign Minister Abbas Araghchi explicitly said Iran has “no intention” of closing the strait. The Supreme National Security Council, which has formal authority over such a decision, has not issued one.
And yet the strait is functionally shut down.
Lloyd’s List Intelligence tracking data shows transits of all vessel types fell 81% on March 1 compared to the previous Sunday. Only 23 transits were recorded that day. Twenty one were eastbound, meaning vessels fleeing the Gulf, not entering it. A single crude oil tanker made the passage. Zero LNG carriers transited. More than 150 vessels, including oil tankers and LNG carriers, have dropped anchor on both sides of the strait rather than attempt passage. At least three tankers have been struck near the strait, and Iranian state television showed footage of one burning and reportedly sinking after what it called an “illegal” transit attempt.
So the strait is not closed by Iranian decree. It is closed by the behavior of the market itself.
This Is an Insurance Story
This is the part most commentary is missing entirely. The mechanism shutting down Hormuz is not Iranian patrol boats or naval mines. It is the withdrawal of war risk insurance.
Seven of the twelve member clubs in the International Group of Protection and Indemnity Clubs, which provides marine liability coverage for approximately 90% of the world’s ocean going fleet, have issued cancellation notices for war risk coverage in the Persian Gulf. The cancellations take effect at midnight London time on March 5. The geographic scope extends beyond the strait itself to cover the entire Persian Gulf, Iranian waters, the Gulf of Oman, and waters west of Ras al Hadd in Oman northeast to the Iran Pakistan border.
No war risk insurance means no commercial transit. Full stop. It does not matter whether Iran has the naval capability to physically blockade the strait. No shipowner will send an uninsured vessel into an active conflict zone. No charterer will accept the liability. No cargo owner will bear the exposure.
The Lloyd’s of London market has already designated Iran, the Gulf, and parts of the Gulf of Oman as high risk areas. Marsh, one of the world’s largest insurance brokers, estimates near term marine hull insurance rate increases of 25% to 50%, and that is assuming no direct attacks on merchant shipping, which have already occurred.
Japan’s MS&AD Insurance Group has suspended underwriting. The American Steamship Owners Mutual Protection and Indemnity Association has issued its own cancellation notice. The insurance market is not hedging. It is exiting.
Maersk has halted all Hormuz transits. Hapag Lloyd has suspended operations and imposed a War Risk Surcharge of $1,500 per standard container and $3,500 per reefer, effective immediately. CMA CGM has introduced an Emergency Conflict Surcharge of $2,000 per container. MSC has suspended worldwide cargo bookings to the Middle East.
The historical parallel worth understanding is the 1980s Tanker War. Insurance claims during that conflict reached $2 billion, with half falling on the Lloyd’s market. But here is the critical difference: during the Tanker War, insurance never went to zero. There was always coverage available for the right price, and traffic continued. Whether this holds true now depends on what happens in the next 72 hours before the March 5 cancellation deadline arrives.
There is one notable exception to the de facto shutdown. Lloyd’s List Intelligence tracked a Chinese owned VLCC, the New Vision, operated by China Merchants Group, transiting Hormuz on March 1. This mirrors the pattern seen in the Red Sea, where Chinese flagged vessels received informal immunity from Houthi attacks. If Beijing negotiates a carve out with Tehran, you could see a two tier system emerge: Chinese vessels transiting freely while the rest of the commercial fleet stays anchored. That would have enormous implications for trade flow patterns and pricing.
The Energy Math
The US Energy Information Administration puts daily oil flow through the Strait of Hormuz at approximately 20 million barrels per day as of 2024. That is roughly 20% of global petroleum liquids consumption. Approximately one fifth of global LNG trade also transits the strait, with Qatar accounting for the vast majority of those volumes. The EIA estimates 84% of crude oil and condensate moving through Hormuz goes to Asian markets, with China, India, Japan, and South Korea as the top destinations.
Brent crude closed Friday at $72.87 per barrel. On Monday’s open it traded at $79.41, up 9%. WTI moved from roughly $67 to $72.79, up 8.6%. Intraday, Brent May futures touched $82.37 before pulling back to the mid $77 range. Barclays has raised its Brent forecast to $100 per barrel. Goldman Sachs has warned that a one month halt in Hormuz navigation could send Asian spot LNG prices up 130%, to $25 per million BTU.
OPEC+ held its previously scheduled meeting on Sunday and agreed to increase production by 206,000 barrels per day in April. That exceeded analyst expectations of 137,000 bpd but fell well short of the aggressive options reportedly on the table at 400,000 to 548,000 bpd.
The number is largely irrelevant. As Rystad Energy’s Jorge Leon put it, logistics and transit risk matter more than production targets right now. OPEC+ spare capacity sits at approximately 3.5 million bpd, concentrated almost entirely in Saudi Arabia and the UAE. Those are the same countries absorbing Iranian missile strikes. And even if they could ramp production, the barrels still have to move through or around the strait.
The Bypass Bottleneck
Alternative pipeline routes exist but cannot come close to replacing Hormuz throughput. The EIA estimates approximately 2.6 million bpd of bypass capacity is available from two routes: Saudi Arabia’s East West Pipeline (the Petroline) running from Abqaiq to the Red Sea port of Yanbu, and the UAE’s Abu Dhabi Crude Oil Pipeline running to Fujairah on the Gulf of Oman. Iran’s Goreh Jask pipeline has a nominal capacity of 300,000 bpd but was barely operational before the strikes and exported less than 70,000 bpd in summer 2024 before ceasing operations entirely.
The math is straightforward: 2.6 million bpd of bypass capacity against roughly 20 million bpd normally transiting the strait. That is 13% coverage. And even the Petroline route faces constraints. Saudi Arabia has been increasing utilization of its East West pipeline in recent years to reroute cargo away from the Bab el Mandeb strait due to Houthi attacks, which means available spare capacity is lower than nameplate suggests.
Iraq, Kuwait, Qatar, and Bahrain have no bypass infrastructure at all. Their exports go through Hormuz or they don’t go. Qatar’s position is particularly acute. As the world’s second largest LNG supplier after the United States, virtually all of its gas exports must pass through the strait. There is no pipeline alternative for Qatari LNG.
What to Watch
The next 72 hours are decisive. The March 5 insurance cancellation deadline is the hard constraint. If P&I clubs follow through and coverage is fully withdrawn, the de facto closure becomes structural rather than tactical. At that point, the question shifts from “will the strait reopen” to “how long will it take to re establish coverage after hostilities end.”
Watch China. If Chinese flagged vessels continue transiting under an informal arrangement with Tehran, a dual track market emerges. Chinese refiners get discounted Iranian and Gulf crude while the rest of the world competes for Atlantic basin and non Gulf barrels. That is bearish for WTI Brent spreads and extremely bullish for shipping rates on non Hormuz routes.
Watch the Bab el Mandeb. Houthi forces have signaled potential closure. If both the Strait of Hormuz and the Bab el Mandeb are functionally shut, the only route from Asia to Europe runs around the Cape of Good Hope. Maersk has already rerouted services accordingly. Container shipping’s brief return to Suez Canal transits in early 2026 is finished.
Watch OPEC+ spare capacity deployment. The 206,000 bpd increase is a placeholder. The real question is whether Saudi Arabia can push an additional 2 to 3 million bpd through the Petroline to Yanbu and onto tankers in the Red Sea. That requires terminal capacity at Yanbu that may not exist at the scale needed. Infrastructure constraints do not bend to geopolitical urgency.
And watch the insurance market. Not the news. Not the analysts. The underwriters. Lloyd’s of London has more power over the flow of oil through Hormuz than the IRGC does. They always have.