The sudden escalation of hostilities in the Middle East region has triggered serious concern across the global marine insurance industry, particularly for vessels and cargo moving through the Gulf region.
In an exclusive interaction with Corpwhizz, Policybazaar Head – Marine Insurance R. Balasundaram said insurers and underwriters had already been closely monitoring the region around the Red Sea and adjoining waters.
The Middle East, especially the areas around the Red Sea, have been under watch by war insurance underwriters for quite some time. These areas and nearby ports had been declared High Risk Areas (HRA), and war risk cover had been withdrawn under cargo and hull policies for vessels transiting this region or calling at these ports. However, war cover could be restored on payment of an additional premium, which insureds were opting for selectively.
According to him, the sudden Israel-US attacks on Iran have taken the market by surprise. The situation has become more complex with Iranian retaliation targeting several countries in the region where the US maintains military and naval bases.
With the outbreak of actual hostilities in the Middle East, underwriters now realise that the threat is real and the additional premium they had been charging for war risks in HRAs was grossly insufficient.
Many may wonder why this conflict should create such a major disruption when Iran has already been under sanctions and oil trade with the country is limited. However, the real concern lies in the Strait of Hormuz, one of the world’s most critical shipping chokepoints.
The narrow Strait of Hormuz, effectively controlled by Iran, handles about 20% of global oil trade. It carries not only Iranian oil and gas but also shipments from upstream ports in the UAE, Qatar, Kuwait, Saudi Arabia and Iraq.
If this vital passage is blocked or becomes an active conflict zone, the entire global oil trade faces disruption. With missiles flying to and from Iran, both laden and empty tankers operating in the Persian Gulf, as well as vessels docked at ports across the region, face massive war risk exposure.
From an insurer and reinsurer perspective, the accumulation of risk in this region could be mind-boggling, given the number of vessels and the value of cargo concentrated in these waters.
Reflecting these risks, the London insurance market, which is the largest provider of marine war risk cover globally, has issued notices of cancellation of war risk cover under all hull policies starting March 11, 2026. Similar cancellations under cargo policies and by P&I Clubs are also expected.
One key question is whether the war cancellation clause will apply to vessels that have not yet sailed but are currently at ports in the Persian Gulf. The answer, according to Policybazaar’s Head – Marine Insurance, R. Balasundaram, is yes. Fully laden or unladen tankers inside these ports will also lose war cover once the notice period expires.
Another question is whether war cover can be reinstated by paying an additional premium. Some London underwriters are currently offering reinstatement of war cover for the region, but at extremely steep premiums that may make the cover commercially unviable.
Given the risks, vessels may avoid passing through the Strait of Hormuz altogether. However, they remain exposed even while anchored in Gulf waters or docked at regional ports. In such circumstances, it may still be advisable for shipowners to reinstate war risk cover if available, even if the cost is prohibitive.
There is also the possibility that if the conflict intensifies, insurers may stop offering reinstatement of war cover entirely.
War risk coverage for cargo shipments is also expected to face cancellations. For high-value cargo currently stuck in the Persian Gulf region, it may be prudent to purchase war cover if available, despite the higher premiums.
India will also feel the impact of these developments. Although imports of Russian oil have declined, India still sources a large share of crude from Gulf countries, meaning shipments must pass through this vulnerable corridor.
Indian oil companies therefore face cargo exposure, while vessels operated by the Shipping Corporation of India (SCI) could face hull exposure in the region.
The immediate fallout of the escalating tensions is also likely to be visible in higher global oil prices in the near term.