Shipping giants reroute as Hormuz risks persist despite truce
Routes shift quickly: Carriers are avoiding Hormuz and the Red Sea, opting for longer, costlier routes to reduce exposure to attacks and seizures.
Ceasefire not enough: Despite diplomatic progress, recent ship seizures and high insurance premiums keep traffic through Hormuz depressed.
Insurance safety nets: India and the US have launched large maritime insurance funds to maintain trade flows amid rising war risk premiums.
Persistent danger keeps ships away
Shipping operators continue to reroute vessels away from the Strait of Hormuz and other chokepoints, prioritising crew safety over cost efficiency. Detours around the Cape of Good Hope can add up to two weeks and roughly $1 million in extra fuel per ship, while also reducing effective fleet capacity and pushing up freight rates. UNCTAD and Lloyd’s List note that these measures, though costly, are immediate responses to sustained threats from missiles, drones, mines, and boarding incidents.
Ceasefire fails to restore confidence
Despite a ceasefire welcomed by the UN, recent Iranian seizures of ships and ongoing security incidents have kept Hormuz traffic low. The strait remains a critical chokepoint, handling about 25% of global seaborne oil and significant LNG volumes, meaning disruptions ripple quickly into global markets. High insurance costs, contradictory political signals, and memories of past conflicts, such as the 1980s Iran–Iraq war, reinforce operator caution.
Insurance becomes a new battleground
War-risk insurance premiums have surged, with some private insurers narrowing coverage or withdrawing entirely from high-risk regions. In response, India has launched the ₹129.8 billion Bharat Maritime Insurance Pool to cover Indian-linked vessels and cargo, while the US has created a $40 billion maritime insurance fund. These measures aim to keep trade moving despite sanctions, seizures, and the potential withdrawal of international insurance support.
Long-term scenarios for global shipping
If risks persist, rerouting could become a structural feature of global trade, increasing costs and reducing efficiency permanently. Alternatively, sustained insurance interventions and coordinated naval protection could restore confidence in chokepoint routes, shortening voyages and lowering freight rates. Historical parallels, such as US naval escorts in the 1980s, suggest that effective protection can eventually normalise traffic, but only if political tensions ease.
