Conflict Premium: Insurance and Supply Chains During the Iran War (Part 3)

Political Risk and Political Violence
PRI and political violence products are designed for the edge cases that standard property programs often exclude—including expropriation/nationalization, currency inconvertibility, contract frustration, political violence and (sometimes) non‑damage denial of access. The exact menu varies by form, market and price.

The practical point is simple: A loss that looks like “government action” or “loss of control” may not resemble a classic property claim. PRI/political violence coverage is often where those scenarios are addressed—if the wording is right.

A Live Example: “Government-Backed” Risk Transfer
Early indicators of how seriously markets are taking the current risk environment include President Trump’s public statement that he has ordered the U.S. International Development Finance Corporation (DFC) to provide political risk insurance to “all shipping lines” “at a very reasonable price,” as reported in connection with his Truth Social post.

What that means in practice: The DFC already offers PRI—a product designed to protect investments and projects in emerging markets from non‑commercial risks, such as political violence, expropriation, currency inconvertibility/transfer restriction, and breach of contract.

Caveat—implementation details matter. DFC describes PRI as a tool to protect eligible investments and projects in emerging markets, which is not the same underwriting frame as “insuring a voyage.” So, a workable DFC solution would likely have to define eligibility (who qualifies as an applicant and what exposure is being insured), and it may end up operating as a backstop to the private war‑risk market (through reinsurance/guarantees) rather than a literal, automatic policy for every ship that transits the region.

PRI is not the same thing as a standard marine Hull & Machinery policy (or a standalone war‑risks policy) that covers physical damage to a vessel. PRI is typically underwritten against defined political perils, with eligibility criteria, limits, exclusions, waiting periods and documentation requirements. In other words, the announcement is significant, but the practical impact depends on what policy language and process DFC actually puts in the market.

If DFC does build a shipping backstop, there are a few realistic ways it could work: (1) DFC could provide reinsurance or guarantees that expand private‑market capacity and reduce pricing spikes; or (2) DFC could offer direct PRI‑style cover for discrete political perils relevant to shipping—such as government detention/confiscation or political‑violence events—rather than trying to replace traditional marine war‑risk underwriting. Either approach would still require underwriting, pricing, and (critically) clear definitions of what counts as a covered “political” loss versus a commercial delay or risk surcharge.

But bottom line? Until there is a published DFC product with actual wording, companies should treat this as a developing policy tool—not a substitute for reviewing (and stress‑testing) existing war‑risk, cargo, political risk/violence, and property/BI programs. Either way, the headline itself is telling: When private capacity tightens and prices jump, policyholders start looking for public-sector backstops.

The “Coverage Is There, but Payment Is Prohibited” Problem
Sanctions are often the hidden tripwire in war‑related claims. Even where a policy’s insuring agreement is triggered, payment may be restricted if it would breach applicable sanctions. U.S. Treasury OFAC FAQ materials note that sanctions clauses and their legal effect are fact‑dependent and that the consequences can vary. The Lloyd’s market has also published guidance on sanctions clauses, emphasizing that wording, governing law and the specific sanctions regime matter.

As a practical step, one should treat sanctions analysis as an early workstream. Ask: (1) which jurisdictions’ sanctions regimes apply to the insured, insurer and payment path; (2) what the policy’s sanctions clause actually says; and (3) whether a license pathway exists where needed. OFAC’s Iran sanctions program materials are a useful starting point.

Case Spotlight: Hamilton and the Meaning of “Seizure”
In Hamilton Corporate Member Ltd & Ors v Afghan Global Insurance Ltd & Ors [2024] EWHC 1426 (Comm), the UK Commercial Court considered a political violence policy in the context of a warehouse in Afghanistan that was seized when the Taliban took control. Tshe reinsurers succeeded on the basis that the relevant cover was for property damage and that a “seizure” exclusion applied to the deprivation loss.

Why it matters for Middle East disruption: In conflict‑adjacent scenarios, businesses often lose access or control before anything is physically damaged. If your policy is written (or reinsured) as a property‑damage form, a non‑damage deprivation can fall into a gap—especially where “seizure” or similar exclusions are broadly drafted. The case is a reminder to test whether your program covers (a) physical damage, (b) non‑damage denial of access, and (c) deprivation by government or de facto authorities—and how those grants interact with exclusions.

Arbitration-Linked Contract Lesson: RTI v MUR
In RTI Ltd v MUR Shipping BV [2024] UKSC 18, a sanctions‑adjacent contract case arising from arbitration, the UK Supreme Court held that a “reasonable endeavours” proviso in a force majeure clause did not require the affected party to accept an offer of non‑contractual performance (such as payment in a different currency) absent clear wording.

Why it matters for insurance outcomes: Contracts shape the loss. If a supplier can lawfully suspend performance, or a buyer can lawfully reject an alternative, that can change (a) whether there is an insurable loss, (b) how mitigation is evaluated, and (c) how damages are measured. The drafting lesson is blunt: If you want flexibility under sanctions or currency disruption, you have to write it in.

Conclusion
PRI and political violence products can fill the non-damage gaps—but only if the definitions and exclusions fit your scenario (seizure, denial of access, contract frustration) and the sanctions clause is understood upfront. In this space, outcomes often turn on a few loaded words.

(This article is the third installment in a four-part series examining insurance considerations brought to the forefront by recent and ongoing events in Iran. Part 4 will examine how a court or arbitrator’s interpretation of key phrases in a war-risk insurance policy can make all the difference.)

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Pillsbury is helping clients navigate the shifting geopolitical, regulatory and economic landscape in Iran with informed insight and global perspective. Our experienced team of legal specialists, policy analysts, and former U.S. and UK government officials are actively monitoring the situation and providing integrated risk and response advice in connection with the immediate and long-term impacts of developments in the region.