Strait of Hormuz Shipping Crisis - Insurance Withdrawal and De Facto Closure - March 2026

On February 28, 2026, the United States and Israel launched a coordinated military campaign designated Operation Epic Fury against Iran. The strikes targeted military installations, nuclear facilities, and senior leadership across at least nine Iranian cities. Iranian state media confirmed on March 1 that Supreme Leader Ali Khamenei had been killed during the operation, marking the most significant leadership elimination in the Islamic Republic's history since 1979.

Within hours of the first strikes, the Islamic Revolutionary Guard Corps (IRGC) began transmitting VHF radio warnings to commercial vessels transiting the Strait of Hormuz, declaring that no ship would be permitted to pass. Although Iran did not issue a formal blockade declaration, these broadcasts triggered an immediate and cascading response across the global maritime insurance market.

War risk underwriters at Lloyd's of London and across the International Group of P&I Clubs began canceling transit policies before financial markets reopened on Monday morning. Major insurers including Gard, Skuld, NorthStandard, London P&I Club, and American Club all issued cancellation notices for war risk coverage across Iranian waters, the Persian Gulf, and the Strait of Hormuz. Under standard notice periods, full cancellation takes effect at midnight on Thursday, March 5. However, interim premium increases were already being imposed, with Marsh McLennan estimating near-term hull and machinery rate hikes between 25% and 50%.

Baseline war risk premiums for Hormuz transits had been priced near 0.25% of a vessel's insured value. For a Very Large Crude Carrier (VLCC) valued at $100 million, that equated to approximately $250,000 per voyage. Under the new crisis conditions, single-transit premiums surged toward $500,000 to $750,000 or more. Vessels linked to American or Israeli business interests became effectively uninsurable, with BIMCO warning that no coverage would be available at any price for these operators.

The insurance withdrawal produced a de facto closure of the strait without a single mine being laid or a formal naval blockade being enforced. Tanker traffic through the Strait of Hormuz plummeted by approximately 81% compared to the prior week. On Sunday, March 1, just 23 transits were recorded, with 21 of those heading eastbound away from the Gulf. The average daily throughput in January had been 10.3 million deadweight tonnes. On March 1, barely 1 million deadweight tonnes passed through.

Several high-profile vessel movements illustrated the scale of disruption. The VLCC KHK Empress, partially loaded with Omani crude bound for Basra, executed a U-turn mid-strait and redirected to New Mangalore, India. The tanker Eagle Veracruz halted at the western approach to Hormuz carrying 2 million barrels of Saudi crude destined for China. The Suezmax tanker Front Shanghai stopped off Sharjah with approximately 1 million barrels of Iraqi crude originally headed for Rotterdam. The supertanker Mitake, en route to Ras Tanura in Saudi Arabia, came to a near-complete stop east of Oman.

Major shipping operators issued fleet-wide directives. Nippon Yusen KK ordered its entire fleet to avoid the Strait of Hormuz. Greece instructed its vast merchant armada to reassess all transits through the region. German container line Hapag-Lloyd suspended all transits indefinitely, citing what it described as an official closure. France's CMA CGM directed vessels in the Persian Gulf to take immediate shelter and suspended Suez Canal passages. Maersk announced a suspension of all vessel crossings through Hormuz until further notice.

The security environment continued deteriorating throughout the weekend. At least four commercial vessels were struck by projectiles in the region. The Marshall Islands-flagged tanker MKD Vyom suffered an explosion and fire off the Omani coast after being hit, resulting in one crew member killed. The sanctioned tanker Skylight was struck by a missile approximately five nautical miles north of Khasab port within Omani territorial waters. The US-flagged product tanker Stena Imperative was hit by projectiles in Bahrain on March 2.

The Strait of Hormuz normally handles approximately 20 million barrels of oil per day, representing roughly 21% of global petroleum supply and 20% of all seaborne liquefied natural gas trade. Bypass pipeline capacity from Saudi Arabia's East-West Pipeline and the UAE's Fujairah line can accommodate roughly 3 million barrels per day, leaving a massive gap of approximately 17 million barrels with no alternative route other than the Cape of Good Hope, which adds 10 to 14 days of transit time.

Oil markets reacted sharply when trading resumed on Monday, March 2. Brent crude surged over 9% to reach approximately $79.40 per barrel, hitting a new 52-week high. WTI crude rose more than 9% to $73.10. Goldman Sachs estimated an $18 per barrel real-time risk premium embedded in crude prices and projected that an extended closure could push Brent toward $110 per barrel. JP Morgan analysts warned that a sustained blockade scenario could drive prices to $120 to $130 per barrel. Wood Mackenzie indicated prices could exceed $100 if tanker flows are not quickly restored. Citigroup projected Brent trading between $80 and $90 in the near term.

OPEC+ convened an emergency virtual meeting on Sunday and agreed to a modest output increase of 206,000 barrels per day for April, a figure widely regarded as insufficient relative to the scale of disruption. A significant portion of OPEC+ spare production capacity remains physically inaccessible while the strait is blocked, undermining one of the global oil market's primary stabilization mechanisms.

The crisis extends beyond crude oil. Qatar, the world's second-largest LNG exporter accounting for 20% of global supply, depends entirely on the Strait of Hormuz for its shipments. At least three gas tankers serving Qatari routes paused voyages. Additionally, approximately one-third of global nitrogen fertilizer exports transit the strait, threatening agricultural input supply chains worldwide.

On the container shipping side, Hapag-Lloyd introduced a War Risk Surcharge of $1,500 per twenty-foot equivalent unit and $3,500 per container for refrigerated and special equipment, applicable to all Arabian Gulf bookings from March 2. Average spot rates from China to the UAE had already risen 5% since mid-February. Analysts warned that key logistics hubs like Jebel Ali in the UAE were becoming effectively cut off.

As of March 2, 2026, the Strait of Hormuz remains technically open but is functionally closed for the vast majority of commercial shipping. A small minority of shipowners, primarily Greek operators, have indicated willingness to attempt transits at night with AIS transponders switched off, but most of the industry is waiting for insurance markets to stabilize and the security situation to improve. The crisis demonstrates a fundamental vulnerability in global energy logistics: a critical maritime chokepoint can be effectively shut down not through physical force alone, but through the withdrawal of the financial infrastructure that makes commercial shipping possible.