Key facts
- War-risk insurance premiums for vessels in the Gulf have surged dramatically, increasing by up to tenfold in some cases.
- The escalation of conflict following U.S.-Israeli airstrikes on Iran led to Iran declaring the Strait of Hormuz closed.
- Shipping companies are incurring higher costs due to rerouting cargo and longer delivery times.
- Global freight rates remain significantly elevated compared to the previous year.
- The increased cost of doing business, including insurance and supply chain adjustments, is expected to drive up consumer prices.
- The IMF forecasts a rise in global inflation in the coming years, influenced by higher commodity prices.
The escalating conflict involving Iran has significantly increased war-risk insurance premiums for businesses, particularly those relying on shipping through critical corridors like the Strait of Hormuz. This surge in insurance costs, coupled with other supply chain disruptions such as rerouting cargo and longer delivery times, is expected to translate into higher prices for a wide range of goods, from food to electronics.
Following coordinated U.S.-Israeli airstrikes on Iran, war-risk premiums for vessels in the Gulf saw a dramatic fivefold increase within 48 hours. Iran's subsequent declaration of the Strait of Hormuz as closed and threats against vessels attempting passage led major P&I Clubs to issue cancellation notices for war-risk coverage. By the first week of March, Reuters reported surges exceeding 1,000%, with premiums generally ranging from 1% to 1.5% of vessel value. This escalated further, with premiums reaching double-digit millions of dollars per trip for high-value vessels by the second week and 3.5% to 7.5% of hull value per voyage by the third week, with some quotes reaching 10% or more.
Shipping companies like Maersk are implementing costly workarounds, such as unloading cargo at the Red Sea port of Jeddah and transporting it by rail and truck to Persian Gulf countries. This alternative route adds approximately $1,000 extra per container. Global logistics company Rhenus reported that freight rates remain 84% higher than a year ago, despite recent declines, impacting manufacturing planning and schedules. These longer lead times, higher freight costs, and elevated energy prices are anticipated to put upward pressure on consumer prices.
Beyond immediate shipping costs, the increased cost of doing business includes the need for greater flexibility, such as alternative manufacturers and stockpiling goods, which inherently adds expense. Insurance costs are also expected to remain at high-risk levels until a sustained period of stability is achieved. Business leaders are acknowledging this as the new operating environment, necessitating the development of alternative pathways and increased plant capacity, all of which contribute to inflationary pressures. The International Monetary Fund has forecast a rise in global inflation to 4.7% in 2026 from 4.1% in 2025, partly driven by higher prices for essential commodities like energy, metals, fertilizer, and food.