As traffic through the Strait of Hormuz has dropped to a trickle compared to travel prior to
the start of the U.S./Israel-Iran conflict, President Donald Trump has continued to not only
offer the security of the U.S. Navy to escort safe passage for vessels but has stepped up his
efforts to offer insurance to protect maritime travel through the combative region.
Since the start of the conflict, major insurers have issued notices of cancellations with
respect to war insurance coverage for vessels traveling the Persian Gulf, Gulf of Oman and
the Strait of Hormuz. As of March 1, vessels passing through the Strait of Hormuz have
been as few as 1 to 3 per day, compared to prior traffic which had as many as 60 or more
tankers per day traversing the strait, most carrying oil, others with either liquified gas or
chemicals.
While Trump’s assurances to provide military support and insurance helped eased the
energy market initially, prices have once again begun to trend up sharply, reaching as high
as $119 per Brendt crude barrel before settling back down to $98 after Israel Prime Minister
Benjamin Netanyahu comments that the Iran war “will be ending a lot faster than people
think.”
Netanyahu claimed the U.S. and Isreal were well on their way to achieving their goals,
which included weakening Iran’s nuclear and missile program, and support for armed
proxies to enable the Iranian people to overthrow the theocracy.
This followed Israel’s retaliatory strike on an Iranian gas field, to which Iran’s response was
to hit targets in Qatar, sending the energy market into a fervor.
Trump issued a scolding on social media and request to Israel that no such attacks occur
moving forward. The market settled down for the day, but things remain volatile and
uncertain, especially with the Hormuz passage at a standstill.
Shortly after the conflict began, Trump ordered the United States Development Finance
Corporation (DFC) to make insurance available to protect affected maritime travel. DFC
describes itself as the “international investment arm of the U.S. government” to provide
“political risk insurance and guarantees” for maritime travel through the Gulf.
The DFC did announce a plan to provide insurance covering losses of up to $20 billion “to
deploy Maritime Reinsurance, including war risk in the Gulf region”, noting that businesses
and financial institutions seeking to access the DFC Insurance and should contact the DFC
directly.
One consideration, however, is budgeting constraints, as all DFC backed projects must be
evaluated for “economic and financial soundness and development objectives” and DFC
must notify congressional committees regarding any financial commitment exceeding
$100 billion.
More significantly, DFC must operate within their congressionally approved maximum
contingent liability, currently standing at $250 billion through 2031. Industry commentators
have observed that such fiscal constraints may affect the scale of coverage the DFC is able
to provide.
Apart from providing insurance, the President has maintained the force of the U.S. military
can be used to provide safe passage through the Strait to American and allied vessels. Iran
has announced it is keeping the strait closed specifically to ships from the U.S., Isreal and
their allies.
Trump went as far on Saturday to issue an ultimatum to Iran to keep the Strait open to all
traffic or face military strikes on power plants and beyond within 48 hours. The U.S. has
argued that Iran’s Revolutionary Guard controls much of the country’s infrastructure and
uses it to power their war effort. Under international law, power plants that benefit civilians
can only be targeted if the military advantage outweighs the suffering it causes them.
Iran’s parliament speaker Mohammad Bagher Qalibaf posted on social media that if the
U.S. attacks Iranian power plants and infrastructure, then vital infrastructure across the
region—including energy and desalination plants critical for drinking water in Gulf
nations—would be targeted and “irreversibly destroyed”.
On Monday, Trump said he was lifting his ultimatum in lieu of “good and productive” peace
talks with Tehran. Iran state media denied there had been any talks, however later in the
day the Iranian Foreign Ministry publicly stated that they had “received points from the U.S.
through mediators and they were being reviewed”.
In additions to infrastructure threats, Iran has also threatened to arm the Strait of Hormuz
with sea mines. Current American intelligence assessments show that there are at least a
dozen Iranian mines in the Strait.
Despite Trump’s projections that the two sides were making “major” progress toward a
deal, the White House said the situation is “fluid” and stated that no formal meetings
between any top leaders between the U.S. and Iran have been announced.
“This is a fluid situation,” said White House Press Secretary Karoline Leavitt. “And
speculation about meetings should not be deemed as final until they are formally
announced by the White House.”
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