The Strait of Hormuz, a narrow strip of sea between Iran and the Omani Musandam Peninsula, will be a major factor in determining the direction of the conflict between the United States and Iran, according to a University of Michigan researcher.
Jatin Dua is a sociocultural anthropologist whose research focuses on flow, interruptions and chokepoints in global shipping. More than 20% of the world's energy trade is shipped through the Strait of Hormuz, and the region is a critical juncture for global trade of all kinds, according to Dua. But it's not just airstrikes that could shut down shipping through the straits. Insurance companies will also play a critical role in the ongoing conflict, Dua says.
He discusses the intricacies of shipping, insurance and how the shipping industry is responding to the United States' strikes on Iran.
Why is the Strait of Hormuz so important in these types of conflicts, both in terms of oil and natural gas shipping as well as cargo shipping in general?
Over a fifth of global natural gas supplies transit through the Strait of Hormuz. Since these are globally traded commodities, any blockage of the strait impacts not only the countries that are dependent on Qatari and Iranian gas, but also the global market.
The Jebel Ali port in Dubai is also a major transshipment hub and the ninth-busiest container port by volume, which means goods are loaded and unloaded from ships coming from all over the world and sent to small ports across the region and beyond. Already we're seeing delays, rerouting and impacts across the world. From congestion in Singapore to decline in Suez traffic and an increase in oil tankers making their way to the Panama Canal, what happens in Hormuz has an impact across the world.
Finally, there is an entire regional economy that has been trying to navigate U.S. sanctions for many years, and Iranian oil and gas is important for these trade networks as far afield as the Horn of Africa. A combination of drought and war has had tremendous, often unseen, consequences in this region. Cheap Iranian oil and gas has been central to these economies and the network of dhows (wooden boats) that help facilitate trade and livelihoods across the Red Sea.
What is the surprising role that insurance companies play in this?
Global shipping is completely dependent on maritime insurance. Ships today are multimillion dollar investments and the costs of delays, and accidents are far too much for individual companies to bear. Additionally, shipping is deeply international with companies "flagging out" their ships (registering ships in jurisdictions around the world) and hiring an international crew. In this situation, insurance companies end up being the key regulator of shipping.
When it comes to navigating geopolitics, they exert great influence deciding how much insurance is needed for ships to transit through a route. This protection is offered through coverage like "war risk cover," which charges a fee for transit based on the cost of the ship. In the past week, many charterers have canceled their coverage and there is an indication that the cost of transit through the Strait of Hormuz will greatly increase. It's fair to say that insurance companies are a key factor in determining where ships can or cannot go.
What has been the Trump administration's response to the March 1 cancellation of war-risk insurance, and is it feasible?
Major insurance companies announced on March 1 that they will be withdrawing war risk cover for ships in the region. But the cancellation is temporary and there will be a repricing of the cover. Immediately Trump responded by saying that the U.S. would offer "political risk coverage" through a relatively unknown government agency called the U.S. International Development Finance Corporation and providing naval escorts. The DFC usually gives loans to countries in the global south and hasn't been in the business of marine insurance.
The potential liabilities accrued would be enormous if there are incidents like we saw in the Red Sea in 2023-24 with Houthi attacks on Red Sea shipping. We're talking about a shipping lane full of oil and gas tankers. The Red Sea is also a good lesson in the efficacy, or lack thereof of naval escorts. These were attempted in combatting piracy from 2008 onwards with limited effect.
How are you using social media to learn about the shipping industry's reaction to this?
A big shift from when I first started doing research on shipping is the ubiquity of the internet onboard ships. When I was doing fieldwork and traveling on container ships through the Suez and Strait of Hormuz from 2014-2020, internet access was rare and heavily regulated by the captain. Partly in response to COVID and things like Starlink, ships now have good and plentiful internet.
This has led to seafarers being able to tell their stories of risk, danger, hard work, loneliness and joy directly through platforms like TikTok, Instagram and YouTube in addition to being in regular contact through WhatsApp. When I heard the news of the attacks on Iran, my WhatsApp was filled with sailors writing about their fear and hopes. These are important voices that are seldom heard when talking about global shipping and trade.
