Trump Says US Will Escort, Insure Oil Tankers Amid the Iran War

“Assuming Tehran decides to continue fighting, we are expecting that full resumption of Hormuz flows will require weeks instead of hours or days, even with the announced and helpful plans to provide insurance or escort ships,” he said.

A few things remain unclear about Trump’s vision of offering insurance to shippers willing to move through the Strait of Hormuz. For starters, it’s not immediately obvious how many will buy this insurance or at what premium the DFC is going to offer.

Risk Level

“How much insurance premium is charged may indicate the level of risk the DFC sees,” said Salar Ghahramani, a professor at Penn State University and founder of Global Policy Advisors, a sovereign wealth fund advisory firm. “Especially comparing that premium to what the private markets would provide.”

This could also be a gargantuan undertaking at a scale the DFC hasn’t handled before. The closest that the agency has come to offering coverage was providing political risk insurance to Ukraine after the Russian invasion began, according to a person familiar with the matter, but that was to insure new projects, not existing assets.

“If they can get actually get an insurance program set up before the war is over — which would mean this war is lasting more than six weeks — they will be insuring a bunch of oil shipments to China and elsewhere in Asia,” said Peter Harrell, a nonresident scholar for the American Statecraft Program at the Carnegie Endowment for International Peace.

To be sure, a large subscription to the DFC’s insurance product could be a positive indicator that the war is under control.

“If a lot of companies buy it that would indicate they have full trust that the US government would meet its obligations should they need to cash in the insurance,” said Ghahramani. “It could mean they generally see it as a likely signal that the risks will be diminishing as the days go on.”

Trump’s decision to thrust the DFC into the spotlight is further evidence of the agency’s significance within the federal government. Issuing risk insurance amid a war further establishes the agency’s foreign policy influence and its potential as a sovereign wealth fund, Ghahramani said, and the move comes weeks after the DFC issued a memo to staff saying it wanted to be more like a sovereign wealth fund.

Trump’s announcement came after some concerns were raised about insurers putting upward pressure on oil prices as insurance contracts were getting pulled, according to people familiar with the matter.

Some of the world’s largest maritime insurance mutuals withdrew war risk insurance cover for ships entering the Persian Gulf as the industry struggles to work out how to price the cost of covering vessels sailing into the waterway.

Gasoline Prices

The administration is also seeking to address high prices for consumers as gasoline prices have already jumped to the highest levels in five months, posing a political risk for Trump before the November midterm elections.

–With assistance from Joe Deaux, Loukia Gyftopoulou and John Harney.

(Updates with DFC statement, in eighth paragraph.)

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