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Background on the Hormuz Crisis
You can skip this long section but know this: THIS IS ALL ABOUT SHIPS, SHIPS, SHIPS... and the US Navy giving them permission to pass.
The Strait of Hormuz is twenty-one miles wide. Two shipping channels, each two miles across, separated by a two-mile buffer. The normal traffic separation scheme runs through Iranian territorial waters, past the islands of Qeshm and Larak, where the IRGC has radar stations, missile batteries, and fast-attack craft bases overlooking every transit.
Twenty million barrels of oil and petroleum products flow through this gap every day. One-fifth of global consumption. There is no alternative. Saudi Arabia’s East-West Pipeline to Yanbu and the UAE’s pipeline to Fujairah can handle maybe 5 million barrels combined. The math doesn’t work. The bottleneck is not political. It’s geological and hydrographic.
When those seven P&I clubs belonging to the International Group issued 72-hour cancellation notices for war risk coverage in the Persian Gulf, they didn’t just raise costs. They made transit impossible.
Here’s why.
P&I clubs insure roughly 90% of the world’s ocean-going tonnage. Without their coverage, ships can’t sail. Port authorities won’t let them dock. Banks won’t finance the cargo. Charterers won’t book the vessel. The entire system, from loading berth to discharge terminal, is underwritten by a chain of contracts that begins with a club in London, Oslo, or Tokyo.
When the clubs pulled war risk extensions on March 5, that chain broke. Not for a few ships. For the global fleet.
War risk premiums jumped from 0.25% to 1% of hull value, renewable every seven days. VLCC charter rates quadrupled to nearly $800,000 per day. Over 1,000 vessels are now trapped in the Persian Gulf, burning charter costs with nowhere to go. By March 3, only four ships crossed the Strait, down from a seven-day average of seventy-seven.
This is the part almost nobody in the media understands. Every TV analyst is talking about minesweepers and carrier strike groups. The binding constraint on Hormuz in the first week was not a minefield. It was spreadsheet in London.
Then Trump did something remarkable.
He ordered the U.S. International Development Finance Corporation to create a $20 billion maritime reinsurance facility, with Chubb as lead underwriter, making the United States government the insurer of last resort for Gulf shipping.
A sovereign nation has positioned itself as the backstop for war risk insurance on the world’s most critical maritime chokepoint. The DFC facility, coordinated with CENTCOM and Treasury, offers hull, machinery, and cargo coverage on a rolling basis to eligible vessels.
The United States now controls the on/off switch for the Strait of Hormuz. Not through naval firepower. Through insurance.
But here’s the tell.
The DFC facility covers hull, machinery, and cargo. It does not cover P&I liability: pollution, crew injury, third-party claims. Moody’s flagged this immediately. Without liability cover, most shipowners still won’t sail. The facility is deliberately incomplete.
If the White House wanted the Strait fully open tomorrow, it could expand the DFC facility to cover P&I liability with one directive. It hasn’t.
That gap is not an oversight. It’s a strike price on an option the administration is choosing not to exercise. Yet.
But now that insurance is mostly settled the ships still aren't sailing. Why?
That insurance isn't backed by the DFC, it's backed by a green light from the US Navy. A green light that hasn't appeared.
Read the latest @DOTMARAD Navy warning carefully: U.S.-flagged, owned, or crewed commercial vessels that are operating in these areas should maintain a minimum standoff of 30 nautical miles from U.S. military vessels to reduce the risk of being mistaken as a threat
They can't pass without Naval ships stepping aside to let them through.
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