Why in the News
Escalating conflict involving Iran, Israel and the United States has led global shipping lines to suspend or divert vessels from the Strait of Hormuz, while insurers rush to cancel war risk covers.
What Is Happening?
- Major container carriers have halted Hormuz transits.
- Some vessels reversed course mid voyage.
- Insurers issued war risk cancellation notices even before markets reopened.
- Tanker hit near Oman, worsening risk perception.
- Around 170 container ships are reportedly inside the strait, facing departure restrictions.
Why Strait of Hormuz Matters
- One of the world’s most critical oil chokepoints.
- Connects Persian Gulf to Arabian Sea.
- Large share of global crude oil and LNG trade passes through it.
- Disruption affects energy prices, freight rates and global supply chains.
Why Insurers Are Cancelling War Risk Covers
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Sharp Rise in Risk
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- War risk premiums in the Gulf were around 0.25% of vessel value.
Now expected to jump up to 50%. - Example: For a 100 million dollar ship. Premium may rise from 250,000 dollars to 375,000 dollars per voyage.
- War risk premiums in the Gulf were around 0.25% of vessel value.
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Anticipation of Escalation
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- Missile strikes and drone attacks increase probability of vessel damage.
- Ports in Israel also facing higher risk premiums.
- Insurers prefer to cancel existing covers and reprice contracts at higher rates.
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Legal and Financial Safeguard
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- War risk insurance is separate from standard marine insurance. Insurers can issue short notice cancellation during extraordinary events.
Impact on Global Trade
- Shipping delays and rerouting from Suez Canal.
- Higher freight and insurance costs.
- Potential spike in crude oil prices.
- Inflationary pressure globally.
Implications for India
- India imports a large share of crude oil from the Gulf.
- Shipping cost increase can widen trade deficit.
- Energy inflation risk.
- Strategic petroleum reserves become important.
Prelims Pointers
- Strait of Hormuz lies between Iran and Oman.
- It is a narrow maritime chokepoint.
- TEU stands for Twenty foot Equivalent Unit.
- War risk insurance covers losses from war, piracy and armed conflict.
| [2024] Consider the following statements:Â
Statement-I: Sumed pipeline is a strategic route for Persian Gulf oil and natural gas shipments to Europe. Statement-II: Sumed pipeline connects the Red Sea with the Mediterranean Sea. Which one of the following is correct in respect of the above statements? (a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I (b) Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I (c) Statement-I is correct, but Statement-II is incorrect (d) Statement-I is incorrect, but Statement-II is correct |
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