Global shipping costs are soaring as the Israel-Iran war escalates, prompting insurers to raise premiums sharply for vessels passing through critical maritime chokepoints such as the Strait of Hormuz and Israeli ports. The rise in shipping risk and associated costs threatens to upend regional trade flows and strain global supply chains already reeling from ongoing Red Sea disruptions.
According to data from Marsh McLennan, the world’s largest insurance broker, insurance prices for ships transiting the Strait of Hormuz have surged more than 60 per cent since the conflict erupted. Hull and machinery insurance premiums — covering damage to the vessel itself — have increased from 0.125 per cent to around 0.2 per cent of a ship’s value. This means insurance for a vessel worth $100 million now costs $200,000, up from $125,000.
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“We’ve not yet seen a missile fired at a ship in the Arabian Gulf, but the pricing clearly reflects heightened market concerns,” said Marcus Baker, Global Head of Marine and Cargo Insurance at Marsh. “The premium hike is a direct reflection of perceived risk.”
The Strait of Hormuz, which connects the Gulf to the Arabian Sea between Iran and Oman, is one of the world’s most vital oil transit routes, with nearly a fifth of global crude passing through its narrow waters. Any disruption or escalation of hostilities in the area could have profound consequences on global energy security and freight logistics.
Further compounding shipping risks, war risk insurance premiums for voyages to Israel have more than tripled since the conflict began. Industry sources said rates have jumped to between 0.7 and 1.0 per cent of a ship’s value for a seven-day voyage to Israeli ports, up from around 0.2 per cent a week earlier. These surcharges translate into tens of thousands of dollars in additional operating costs per voyage.
“Each voyage to Israeli ports is being underwritten on a case-by-case basis now,” said David Smith, Head of Marine at insurance broker McGill and Partners. “Rates can go up to 1 per cent depending on the ship’s ownership, cargo type, and destination.”
Ports in Israel — such as Ashdod in the south, Haifa in the north, and Eilat on the Red Sea — are vital gateways for the country’s imports. While Haifa port operations reportedly remain normal, nearly 30 ships were seen anchored offshore as of Tuesday, according to MarineTraffic data. The Bazan Group, operator of Israel’s largest oil refinery in Haifa, shut the plant on June 16 after an Iranian missile strike damaged its power station.
Shipping companies are increasingly hesitant to call at Israeli ports amid these heightened risks. The Iran-backed Houthi militia in Yemen has also warned it would target vessels linked to Israel, despite a truce on US and UK-related targets in the Red Sea. In March, the Houthis announced a self-declared “maritime blockade” on Haifa port in response to Israel’s Gaza offensive, escalating threats to regional shipping lanes.
The growing risks have also raised alarm in global financial and insurance circles. In its latest analysis, S&P Global Ratings noted that insurers and banks across the Middle East are bracing for potential fallout. The agency pointed to an Israeli government scheme in place to absorb most conflict-related insurance losses, while insurers in the Gulf Cooperation Council (GCC) remain well-capitalised and resilient. “GCC insurers benefit from robust capital buffers, and Israeli banks are being supported by state-backed safety nets to shield the financial system from major disruption,” S&P said.
Fitch Ratings echoed similar concerns. In a report released this week, the agency warned that the Israel-Iran conflict has raised geopolitical and security risks across the Middle East. Although Fitch expects the fighting to remain localised and relatively short-lived, the firm cautioned that broader escalation — such as attacks on US targets or GCC bases — could have severe implications for sovereign credit profiles, energy markets, and regional economies.
“The most severe scenarios — like a disruption of traffic through the Strait of Hormuz — are not part of our baseline, but they cannot be ruled out entirely,” Fitch analysts said. “Such a disruption would drive oil prices higher for a sustained period and cause negative spillovers for regional sovereigns, even as energy exporters benefit from price gains.”
One key concern is the potential impact on Egypt’s earnings from the Suez Canal if Houthi attacks were to intensify and dissuade ships from using the route. Egypt, Jordan, and other nearby economies that depend on tourism and trade are also exposed to downside risks. Jordan’s tourism sector, for example, is already seeing a drop in European arrivals, threatening fiscal revenues and economic growth.
While most shipping lanes remain open and operations continue, insurers and governments are monitoring the evolving situation closely. The immediate effect is already visible in spiking insurance costs, delayed cargo deliveries, and logistical uncertainties — all of which threaten to add inflationary pressures at a time when global trade is struggling to stabilise.
