Rafael Muñoz Abad, a maritime analyst at the CISDE International Campus, writes for Splash today.

In 1686, a certain Edward Lloyd—whom I imagine with a white beard and a navy wool coat with curved bone buttons—ran a coffeehouse on Tower Street, London, when he came up with the brilliant idea of publishing the status of the ships moored on the banks of the Thames, their latest voyages, any incidents they had encountered, and whether the shippers had made claims against the shipowner. All this was displayed on a blackboard in the finest tradition of British betting houses. This allowed shippers to ascertain the condition of the vessel with which they wished to sign a charter party. Several centuries later, the grandchildren of old Edward must be very grateful, as Lloyd’s went on to become one of the largest insurers and a benchmark in the maritime risk markets, as well as the most influential analysis and intelligence firm in the maritime business and one of the leading ship classification societies.

Fear is the [invisible] force behind the closure of the Strait of Hormuz. This notorious bottleneck in maritime traffic requires ships to tack sharply to port to enter the Persian Gulf. In maritime terms, petrol prices at the pump and for the consumer do not rise simply because Iran has laid a minefield in the TSR (Traffic Separation Scheme), threatens to deploy drones against commercial shipping, or possesses a substantial arsenal of anti-ship missiles capable of striking within a mere 10 miles of the planet’s largest oil flow.

Fear is the invisible barrier blocking the two maritime shipping lanes that account for 20% of global oil traffic. The fear of shipowners and fleet operators of losing their floating assets, their vessels. The lifeblood of the global economy.

Then there is what is known as War Risk Insurance, or the maritime risk premium, which, broadly speaking, is essentially a clause separate from the general policy that the shipowner takes out with an insurer when their vessel is sailing in high-risk waters, and this includes a war scenario such as that in the Strait of Hormuz and its adjacent waters. There are two main types of maritime insurer. The most popular are the so-called P&I (Protection & Indemnity) Clubs. These are mutual societies where shipowners pay a premium to obtain cover for the hull, machinery, and a long list of other protections. These mutual societies are not-for-profit and may be reinsured by third-party insurers. The most renowned Clubs are The American Club, Britannia P&I, and The London P&I. As you can see, we are dealing with an Anglo-Saxon world, a living legacy of the United Kingdom’s former maritime dominance, which in some ways remains latent; if you doubt this, just ask the Spanish legal profession about the monumental farce they made of the hearing in which they claimed nearly a billion from the Prestige Club; but that is another story.

The other model of marine insurance is the Lloyd’s insurance market, where risks are accepted in exchange for capital, and where a profit is indeed sought. Lloyd’s acts as a sort of barometer for the scale of marine policies. Furthermore, its marine bulletin serves as an informative benchmark for the industry.

Following the US miscalculation in attacking Iran – the first and predictable consequence of which was to spread fear amongst shipowners – the risk premium soon began to rise and move away from its usual level. Let’s take a look.

For a charter of an aframax tanker carrying 850,000 barrels of Saudi crude between Ras-Tanura and the port of Singapore, in peacetime, war risk insurance is usually an average of 0.25% of the total charter hire. Thus, for a charter of $150m, a premium of around $375,000 would be paid. As you read this, the premium is already at 1%, which has raised the cost of the policy for sailing in ‘hot’ waters to $1.5m. A few days ago, Lloyd’s put forward a figure of between 7.5% and 10% – do the maths; it makes my head spin. The devil is in the detail, and here lies one of the key reasons for the rise in fuel prices.

If shipowners must pay insurers a risk premium for sailing in an unsafe area, the cost of their policies rises; this increase is passed on to the cargo owner for transporting the goods to their destination; and so on, until this chain of price rises reaches the consumer at the pump. Make no mistake: petrol prices will continue to rise; the spoils are taken by the state in its voracious pursuit of revenue and taxation.

We are now three weeks into the maritime ‘blockade’ in the Strait of Hormuz. Iran, without firing a single Noor anti-ship missile, knows how to masterfully exploit the fear that still lurks within shipowners. Fear that ship’s officers heard live on VHF channel 16, via a recorded message in English with a Persian accent, stating that the Strait of Hormuz traffic system was closed to vessels until further notice. How long might this situation drag on? The question should be: how much will the risk premium rise? Or which vessels will be the first to pass through?

The incident that attracted the most media attention was the attack on the Thai general cargo ship Mayuree Naree, which was presumably struck by a projectile or a drifting mine. Its crew was evacuated, and the vessel was left adrift. The good news is that the ship’s insurer has stated that it will cover the incident, which is certainly a reassuring message for shipowners.

The nature of P&I clubs is to provide shipowners with compensation at cost price for civil liability risks. Cover for war risks is generally excluded in the clubs’ rules. External insurance is therefore taken out, usually hull insurance. These policies essentially cover the risks accepted in the Lloyd’s insurance market. This is why the British firm was quick to deny that war cover had been suspended. If that were to happen, ships would not sail, and the markets would indeed collapse due to fears of shortages.

Insurers have been insuring merchant ships in war zones for decades; it’s simply part and parcel of the maritime business. In the days following Russia’s invasion of Ukraine, the war risk premium for sailing in the Black Sea rose to nearly 20%, but insurance cover was not suspended. As you can see, it seems the world hangs in the balance over this very war risk premium.

The military tension in the region, the geopolitical developments – and I’m just throwing this out there – along with the Development Finance Corporation (DFC) paying out $20bn to encourage shipowners to navigate the mine-strewn Strait of Hormuz, as a solution to the shipowners’ fears, do not exactly seem to allay those fears. No two cargoes are the same, and shipowners—a closed and opaque world—prefer the certainty of their maritime protection clubs to a state fund subject to Trump’s whims and geopolitical calculations.

In 1987, the US Navy already led an international coalition – nothing new – to escort Kuwaiti oil tankers and thereby protect them from the effects of the Iran-Iraq War and attacks on oil tankers. It was known as Operation Earnest Will. That tanker war marked the beginning of a long maritime history of attacks on and seizures of tankers.

The old practice of convoying is what would prompt shipowners to issue new orders to their captains to either enter the Persian Gulf to load cargo or leave it already loaded. Yes, there are two large clusters of vessels. The inner one consists of oil tankers waiting, fully loaded, in the coastal waters off the southern shore of the Persian Gulf, and those south of the Strait of Hormuz traffic system, lying in ballast—empty—to enter and load. The immediate consequence of this ‘fear-induced’ bottleneck is that exporting countries have already slowed down refining and crude oil extraction, as the ships are trapped in the Gulf, storage capacity is finite, and there are no new customers to load.

Here, the smartest players in the game were the United Arab Emirates, who, seeing how the Shia were behaving, positioned the Fujairah cargo terminal outside the influence of the Strait of Hormuz.

We are amid a maritime poker game with the cards marked in the hands of the shipowners, who will not take any risks until they are certain of safe waters and a stable premium. As soon as Iran attacks a large Greek-owned oil tanker, the fleets will seek shelter, and we will be back to square one with maritime stagnation. A hand of cards whose only certainty is that tomorrow petrol prices will rise again.