The United States announced on Friday a 20-billion-U.S.-dollar reinsurance plan to cover the maritime losses for vessels in the Gulf region, as insurance costs surged around the Strait of Hormuz amid escalating Middle East tensions.
The announcement followed an order by U.S. President Donald Trump directing the U.S. International Development Finance Corporation (DFC) to provide so-called political risk insurance and guarantees for maritime trade, especially energy, "traveling through the Gulf."
The announcement said the DFC facility will insure losses on a rolling basis, covering maritime risks including war risk, to ensure key commodities such as oil, gasoline and liquefied natural gas (LNG) continue to flow through the Strait of Hormuz to global markets.
Nestled between the Gulf and the Gulf of Oman, the Strait of Hormuz serves as the only sea passage from the Gulf to the open ocean, cementing its status as one of the world's most strategically vital chokepoints.
Reinsurance covers insurance companies against losses. As tensions rise in the Middle East, war risk insurance rates in the Gulf region have surged. Many commercial insurers have withdrawn war risk coverage for vessels operating in Iranian waters, as well as in the Gulf and adjacent waters.
JPMorgan Chase estimates that tankers traversing the region may require more than 300 billion U.S. dollars in insurance coverage, far exceeding the 20 billion U.S. dollars pledged by the U.S. government.
US to cover Gulf maritime losses with 20 bln USD
