Shippers Fear Death More Than Costs as US Aims to Open Hormuz

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(Bloomberg) — Shippers remain doubtful of a wholesale return to the Strait of Hormuz while it remains beset by conflict, throwing cold water on a Trump administration plan for US-backed insurance and naval escorts to clear passage through the vital waterway.

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“This is currently an unmanageable risk,” said Bob McNally, president of Rapidan Energy Group, a Washington-based consultant firm. “Insurance rates will fall — and the willingness of commercial operators to insure and send cargoes through the Strait will rise — only after Iran’s military capabilities are degraded.”

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Even so, US government officials remain publicly bullish about the prospect for an increase in oil, fertilizer and other cargoes traversing the strait, on the back of a $20 billion Development Finance Corporation maritime reinsurance program announced roughly three weeks ago.

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Treasury Secretary Scott Bessent said Thursday that the Development Finance Corporation’s maritime reinsurance program and efforts with Central Command “will soon provide shippers through the Gulf region with a level of security we have never seen before.” He told Fox News on Monday that the US is “going to retake control” of Hormuz, ensuring safe navigation “through US escorts or a multinational escort.”

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There have been no signs that a US Navy-escorted tanker has made its way through the strait under the DFC program. But a DFC official affirmed Bessent’s view and said reinsurance will start soon. Asked why the program hasn’t yet been executed, the official said additional updates would be provided as soon as available.

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Since the war began, traffic through Hormuz, which accounts for about a fifth of the world’s oil and liquefied natural gas, has largely ground to a halt. Iran’s parliament approved legislation to impose fees in the strait, according to the semi-official Fars news agency.

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A handful of vessels have made their way through by switching off their satellite signals, while others have managed to traverse the strait thanks to agreements between regional governments and Iran. The insurance status of such ships wasn’t immediately clear, however London providers have repeatedly insisted that cover is available in recent weeks.

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“Ships do not move without crews, and crews will not move unless they can be guaranteed to be safe,” said René Kofod-Olsen, chief executive officer of ship and crew manager V.Group Ltd. 

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Even as the DFC’s program could help make the exorbitant costs of passage through the Strait of Hormuz more palatable, the danger of doing so is still seen as the deal-breaker — especially as markets have shown diminishing confidence that the month-long war is coming to a close. The administration has tied the reinsurance offer with the availability of US Navy escorts, deferring to Central Command on how those would be executed. 

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Asked on its role in assisting the DFC program, and whether military escorts would be ready to go on orders, a Central Command spokesperson responded that there was nothing to add to Bessent’s remarks.