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<\/p>\nPresident Donald Trump says the US will ensure the free flow of energy through the Persian Gulf with insurance guarantees and even naval escorts. But the shipping industry sees it \u2014 at best \u2014 as only a partial solution to a historic crisis.<\/p>\n
\u201cWhile President Trump\u2019s comments about insurance and tanker escorts caused a pullback in oil prices, we question how much planning has been done on the insurance backstop thus far and think there could be a number of challenges in executing this plan quickly,\u201d RBC Capital Markets LLC analysts said in a note.<\/p>\n
US and Israeli strikes on Iran over the weekend have triggered a spiraling regional conflict and multiple attacks on vessels have now effectively closed off the Strait of Hormuz \u2014 the critical waterway connecting some of the world\u2019s biggest oil and gas producers with the rest of the world.<\/p>\n
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With ships unable or unwilling to transit the strait, producers cannot export, supertanker costs are skyrocketing and storage at many Persian Gulf refineries is filling up fast. The world\u2019s largest insurance mutuals have withdrawn war risk insurance cover for ships in the area.<\/p>\n
Read More: Trump Orders Oil Tanker Insurance Support, Says Navy Could Escort Ships in Gulf<\/a><\/p>\n \u201cThe core thing shipowners are thinking about is the real risk of loss,\u201d said Karnan Thirupathy, partner at Kennedys Law LLP who specializes in the commodities, shipping and insurance sectors. \u201cNo one goes into the trade if the risk of loss is simply too high.\u201d<\/p>\n The effects have been swift. Iraq, the biggest Middle Eastern oil producer after Saudi Arabia, has already begun huge cuts to output and faces even deeper reductions, in the clearest sign yet of stress on suppliers in the region. <\/p>\n Trump\u2019s solution involves tapping the US International Development Finance Corporation \u2014 an institution that typically helps the private sector to provide finance for developing countries \u2014 which will in turn support charterers, shipowners and key maritime insurers.<\/p>\n There is some international precedent. In November 2023, a facility was set up with partners including Lloyd\u2019s insurers and the Ukrainian government to provide affordable war risk insurance for ships underpinning Ukraine\u2019s maritime exports, particularly grain cargoes. And the DFC has provided some assistance with war risk reinsurance<\/a>, something it could repeat.<\/p>\n Still, an updated US-organized version to cover oil, gas and fuels across the Persian Gulf would be on a far larger scale, and more complex, given the number of producers and consumers involved. Several shipowners said they would also be wary of tying their fortunes to a volatile US administration.<\/p>\n