Tankers returned to Hormuz faster than insurers repriced the risk

The Greek-owned tanker Metro Venetian took a projectile off the coast of Oman on August 25 and kept its engine room flooded and its crew alive — one more hull hit in a strait that, by every traffic count, is filling back up with ships (Greek Reporter, Aug 25).

The fleet is going back into Hormuz faster than the insurance market will cut the price of going in. That gap between transit counts and premium quotes is now the single best gauge of who actually believes the strait is safe, and it currently says the shipowners do and the underwriters do not. Whoever is wrong is carrying the loss, and the next paragraphs say who that is likely to be.

Preliminary counts show 108 transits through the strait during August 17 to 23, up 27 percent week on week and the highest weekly total since the memorandum of understanding between Washington and Tehran collapsed in early July, according to Lloyd's List Intelligence on August 27. Traffic is still well below anything a broker would call normal.

The price of covering one crossing tells the other half. War-risk premiums for a Hormuz transit have risen from roughly 0.25 percent of hull value before the conflict to about 5 percent, per a deVere Group analysis citing Lloyd's Market Association figures — around five million dollars to insure a hundred-million-dollar tanker for a single passage, where a quarter million once did (TFTC, updated Aug 26).

Neil Roberts, head of marine and aviation at the Lloyd's Market Association, said in July that "war-risk rates have moved as risk has moved," and rates have since held near that 5 percent mark even as the ships came back (TFTC, Aug 26).

Crude barely noticed the return. Brent fell for a third straight session on August 26 to about $86, roughly a third below its late-April peak above $120, as traders traded the Iran-Oman corridor talks rather than the traffic data (ZeroHedge, Aug 26).

Tehran is not waving the ships through warmly. Iran's Persian Gulf Strait Authority published a blacklist of 45 vessels, mainly tankers, accused of breaking its unilateral transit rules, and 12 of the listed VLCCs were responsible for more than 15 percent of crude liftings from the Middle East Gulf since the July collapse (Lloyd's List Intelligence, Aug 27).

The crews carry the tail

The transit count measures hulls; the people aboard experience the same strait as accumulation.

The transit count is the measure everyone quotes, and it is blind to the thing that matters most. It counts hulls, not repeats. Since the ceasefire, Gulf exports have moved on shuttle tankers and ship-to-ship transfers, concentrating the danger on a small circle of vessels and crews making run after run through high-threat water, while at least 19 seafarers have died since the conflict began, by the International Maritime Organization's count (Lloyd's List Intelligence, Aug 27).

That is the exposure nobody's premium is sized to: a war-risk policy covers one voyage, but a crew signs on for a season of them. The measure reads each crossing as an independent event. The people aboard experience it as accumulation, and they are not paid per crossing for the difference.

The proposed Iran-Oman corridor sharpens the point. It would route inbound ships through Iranian waters and outbound ships through Omani waters under a temporary traffic separation scheme — a framework, Oman's foreign minister came home from Tehran with, not a reopening (Eastern Herald, Aug 26). London has given no sign of cutting premiums for the Iranian side of it; the Lloyd's Market Association's Roberts said in July that war-risk rates move as the risk moves, and that logic cuts in both directions (TFTC, Aug 26). An owner can reroute a ship in a day. A committee can reprice a strait only after a season of quiet, and the Metro Venetian shows they have not been given one.

The historical model here is the Red Sea after 2023, where traffic collapsed and stayed collapsed for many months because no price made the cape diversion worse than the missile risk. The counter-model is the same water in 2019, when tanker owners came back within weeks once rates spiked — because Gulf crude pays so well that someone will always take the next voyage. This week looks like 2019 with longer range missiles, and the difference is that the return traffic is thinner-keeled, state-linked and Sinokor-linked tonnage rather than the independent majors, which means the entities running the strait are precisely the ones least able to absorb a hull loss.

Who pockets the gap

The underwriters are earning the spread. Five percent of hull value per transit is a windfall rate on a trade that is running again, and every week the fleet moves before premiums move, the London market books the difference between the risk as sailed and the risk as priced.

The charterers pay it through. VLCC freight out of the Gulf still carries a heavy premium over its pre-conflict level, and the war-risk line now sits as its own item on the voyage estimate rather than a rounding error, so every barrel landing at Jamnagar or Yeosu carries the strait's cost in its landed price.

The refiners in Asia absorb it last, with the least choice. Roughly four-fifths of the strait's oil is bound for Asia, and Japan and South Korea hold thin strategic buffers compared with China's stockpiles, so they buy the cargoes with the fat freight and the fat insurance attached (TFTC, Jul 23).

Washington's contribution runs the other way. The "Economic D-Day" sanctions package announced August 19 has designated nearly 60 entities, vessels and individuals, including a UAE-based bunker supplier — the first direct hit on a sector that had escaped enforcement — which pushes fuel and compliance costs onto the same voyages already paying the war premium (Lloyd's List Intelligence, Aug 27).

What would settle the argument between the transit counts and the premium quotes is the same observable in both directions: the published additional-premium rate for a single Hormuz transit. If London cuts it within weeks of quiet, the return traffic was the honest signal and the strait is truly reopening. If the rate holds at 5 percent while transits climb, the fleet is being paid in freight to carry risk the insurance market refuses to reprice, and the crews — not the owners, not the charterers — are the ones holding the difference.

The strait is reopening on the owners' clock and repricing on the underwriters' clock, and between the two clocks stands a crew signed on for a season of crossings at a price set for one.