The Strait of Hormuz story is an insurance story
Closure headlines miss the mechanism. Nobody has to sink a tanker to move oil prices — underwriters can do it with a memo.
Every few months a headline warns the Strait of Hormuz could be closed. It is the wrong frame. The strait has never been closed — not during the tanker war of the 1980s, not since. What changes, and what moves prices, is the cost of insuring a hull to go through it.
The geography
Hormuz is about 21 nautical miles wide at its narrowest, with the shipping lanes only a couple of miles across in each direction. Roughly a fifth of global petroleum liquids passes through. Oman holds the southern side at Musandam; Iran holds the north.
There is no alternative sea route out of the Gulf. Pipelines exist — Saudi Arabia’s East-West line, the UAE’s Fujairah line — but together they cover a fraction of normal throughput.
Why insurance is the mechanism
War risk premiums are quoted as a percentage of hull value per voyage. In quiet periods the Gulf premium is a rounding error. After an incident it can move by an order of magnitude within days, on underwriter judgement rather than any state’s decision.
Some owners decline the voyage at any premium, which tightens available tonnage — and the tonnage effect usually outweighs the premium itself.
What to watch
War risk quotes, vessel behaviour on AIS ahead of formal rate moves, and Fujairah bunker volumes. When those three move together the market has decided something, usually before the diplomatic coverage catches up.
Reported by Reuters; analysis ours.
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