Conflict Premium: Insurance and Supply Chains During the Iran War

The Strait of Hormuz is a prime example: The U.S. Energy Information Administration (EIA) reports that in 2024 oil flows through Hormuz averaged about 20 million barrels per day—roughly 20% of global petroleum liquids consumption—and that around one-fifth of global liquefied natural gas trade also transit the strait, primarily from Qatar. EIA also emphasizes that “very few alternative options exist” if the strait is closed; while pipeline bypasses exist, EIA estimates that only ~2.6 million barrels/day of Saudi/UAE pipeline capacity could be available to bypass Hormuz during a disruption—leaving a large share still exposed.

In late February and early March 2026, multiple market reports and shipping advisories described a sharp deterioration in maritime operating conditions in and around Hormuz—including congestion, vessels seeking refuge and elevated targeting risk. Seatrade Maritime reported that over 750 commercial vessels were inside the Strait of Hormuz at the time of publication and quoted industry assessments that ships were likely to avoid the immediate conflict area until conditions stabilized.

The risk related to these disruptions is so real that President Trump announced on Truth Social this week 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.” What this means, whether it can be implemented and how it will work remain to be seen.

Constraints in the region can affect shipments well beyond crude oil; the current conflict is causing shortages and price increases on exports of pharmaceuticals from India, semiconductors/batteries/electronics from Asia, and Middle East‑sourced petrochemical feedstocks and nitrogen fertilizer, as examples of categories facing delay and knock‑on pricing pressure.

Some operators have announced significant reroutes and suspensions. For example, Maersk said on March 1, 2026, that it paused future Trans‑Suez sailings through the Bab el‑Mandeb Strait and rerouted certain services around the Cape of Good Hope. Maersk also said it was suspending all vessel crossings in the Strait of Hormuz until further notice. A Syracuse University supply chain expert, Patrick Penfield, estimates that reroutes can add roughly 10–14 days and about $1 million in fuel per ship, alongside growing conflict‑related surcharges.

Air travel has also been disrupted. Flightradar24’s live updates on airspace closures following Israeli and U.S. strikes on Iran tracked multiple NOTAM‑driven airspace closures and extensions across the region.

Those flight‑path changes make a difference for cargo even when the shipment itself is not “urgent.” Boeing’s 2024 World Air Cargo Forecast notes that less than 1% of world trade volume moves by air, but air freight commodities collectively generate around 35% of world trade value—meaning disruptions can disproportionately affect high‑value and time‑sensitive supply chains.

Why This Becomes an Insurance (and Contract) Problem
For businesses, the operational story usually looks like this: a route closes (or becomes too risky), a shipment diverts, a delivery window slips and costs rise in layers—freight, inventory, financing and sometimes replacement sourcing. What turns a disruption into a dispute is often the same thing: The contract and the policy were written for “normal,” and the loss arrives during “not normal.”

• Maritime rerouting and delay costs. Longer voyages can mean more fuel, more crew time and missed contractual delivery windows. Some losses are “pure delay” (no physical damage), which can be a coverage problem if a policy requires physical loss or damage as a trigger or if there are the traditional war exclusions or other limitations in standard property insurance or cargo policies.
• War‑risk pricing and cancellation. In fast‑moving conflicts, war‑risk cover can become more expensive or may be cancelled on short notice depending on the wording. The Financial Times reported war-risk premiums for ships transiting Hormuz have, in some cases, increased twelve fold, with some policies canceled or capacity withdrawn amid heightened attack risk. Some mutual insurers also issued Notices of Cancellation of War Risks coverage for certain areas effective 72 hours after 0000 GMT on March 1, 2026.
• Airspace closures and capacity constraints. When airspace closes, cargo may reroute to longer corridors (or switch modes entirely). Even if the goods still move, the extra cost and the customer‑impact often become the claim.
• Sanctions and payments. Sanctions can block banking channels and performance—even where the underlying goods are lawful. Sanctions clauses in insurance are highly fact‑ and wording‑dependent, and they can affect not only whether a claim is payable, but how and when it can be paid.

Conclusion
“The Iran war disrupted our supply chain” is not one loss—it’s a category with many types of losses encompassed within it—property damage, loss of access, seizure or detention, contract frustration, contingent business interruption, cargo/inland marine or delay. Each type of loss maps to different coverage grants, exclusions and conditions. Start by naming the mechanism (diversion, delay, detention, denial of access or blocked payment), because each one points to different triggers, exclusions and proof requirements.

Before costs start compounding, capture the paper trail—carrier notices, routing decisions, port/airspace advisories and conflict surcharges—because that contemporaneous record is often what makes (or breaks) coverage later.

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.

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(This post is for general informational purposes only and does not constitute legal advice. Insurance coverage turns on policy wording, facts and applicable law.)