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<\/p>\n(Bloomberg) — President Donald Trump said the US will provide insurance guarantees and naval escorts to ensure safe passage for oil tankers and other vessels through the Strait of Hormuz, intending to head off a potential energy crisis caused by the war with Iran.<\/p>\n
Trump said Tuesday that the US International Development Finance Corporation would offer insurance \u201cat a very reasonable price\u201d to help ensure the flow of energy and other commercial trade in the Gulf. In addition, he said \u201cif necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible.\u201d<\/p>\n
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\u201cNo matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,\u201d the president posted on social media.<\/p>\n
<\/p>\n
Oil prices pared gains briefly on the news, with global benchmark Brent trading near $80 a barrel after settlement. While the president\u2019s announcement knocked out some of the risk premium in energy markets, traders remain skeptical that the plan will allow oil flows to swiftly return to normal levels in the region.<\/p>\n
Prices have surged more than 10% since the US and Israel began attacks on Iran over the weekend, triggering widespread disruptions in the Middle East and effectively halting oil flows in the critical Strait of Hormuz, through which a fifth of the world\u2019s energy supplies transit. <\/p>\n
Trump\u2019s post did not elaborate on the insurance mechanism to be offered by the DFC, an institution that generally exists to mobilize private capital to developing nations and lower risks for investments in poor countries.<\/p>\n
Political risk insurance, like that offered by the DFC, helps cover losses due to war, violence and other political turmoil.<\/p>\n
In a news release DFC later said it will offer support to commercial shipping charters, shipowners and key maritime insurance providers to minimize market disruptions and help ensure the free flow of goods and capital. It advised interested parties to contact the DFC directly, without providing further details.<\/p>\n
\u201cThe announcement may help to reassure traders, but escorting and insuring will take some time to implement,\u201d said Bob McNally, president of consultant Rapidan Energy Group and a former White House official. \u201cThe US military will first want to suppress Iran\u2019s ability to mine and attack ships with anti-ship cruise missiles and drones,\u201d McNally added in an email.<\/p>\n
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\u201cAssuming 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,\u201d he said.<\/p>\n
A few things remain unclear about Trump\u2019s vision of offering insurance to shippers willing to move through the Strait of Hormuz. For starters, it\u2019s not immediately obvious how many will buy this insurance or at what premium the DFC is going to offer.<\/p>\n
Risk Level<\/p>\n
\u201cHow much insurance premium is charged may indicate the level of risk the DFC sees,\u201d said Salar Ghahramani, a professor at Penn State University and founder of Global Policy Advisors, a sovereign wealth fund advisory firm. \u201cEspecially comparing that premium to what the private markets would provide.\u201d<\/p>\n
This could also be a gargantuan undertaking at a scale the DFC hasn\u2019t 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.<\/p>\n
\u201cIf they can get actually get an insurance program set up before the war is over \u2014 which would mean this war is lasting more than six weeks \u2014 they will be insuring a bunch of oil shipments to China and elsewhere in Asia,\u201d said Peter Harrell, a nonresident scholar for the American Statecraft Program at the Carnegie Endowment for International Peace.<\/p>\n
To be sure, a large subscription to the DFC\u2019s insurance product could be a positive indicator that the war is under control.<\/p>\n
\u201cIf 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,\u201d said Ghahramani. \u201cIt could mean they generally see it as a likely signal that the risks will be diminishing as the days go on.\u201d<\/p>\n
Trump\u2019s decision to thrust the DFC into the spotlight is further evidence of the agency\u2019s significance within the federal government. Issuing risk insurance amid a war further establishes the agency\u2019s 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.<\/p>\n
Trump\u2019s 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.<\/p>\n
Some of the world\u2019s 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.<\/p>\n
Gasoline Prices<\/p>\n
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.<\/p>\n
–With assistance from Joe Deaux, Loukia Gyftopoulou and John Harney.<\/p>\n
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\u00a92026 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"(Bloomberg) — President Donald Trump said the US will provide insurance guarantees and naval escorts to ensure safe…\n","protected":false},"author":2,"featured_media":2014,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[1732,1734,38,1735,102,34,261,1364,1733,101,1736,1730,1731],"class_list":{"0":"post-2013","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-strait-of-hormuz","8":"tag-bloombergnef","9":"tag-dfc","10":"tag-donald-trump","11":"tag-flow-of-energy","12":"tag-hormuz","13":"tag-iran","14":"tag-oil-prices","15":"tag-oil-tankers","16":"tag-political-risk-insurance","17":"tag-strait-of-hormuz","18":"tag-the-united-states-navy","19":"tag-us-energy-information-administration","20":"tag-us-international-development-finance-corporation"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@iran\/116168656703846775","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/posts\/2013","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/comments?post=2013"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/posts\/2013\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/media\/2014"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/media?parent=2013"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/categories?post=2013"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/tags?post=2013"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}