Hormuz was not shut by a naval blockade. It was shut by an insurance withdrawal.

For decades, the closure of the Strait of Hormuz sat in the annals of geopolitical risk analysis as a theoretical tail event—something analysts modelled, insurers priced at the margins, and policymakers invoked as the ultimate deterrent. Nobody seriously expected it to happen. And yet here we are, ten days into Operation Epic Fury, and the 21-nautical-mile passage between Iran and Oman that carries a fifth of the world’s oil and a fifth of its liquefied natural gas has gone functionally dark. Tanker transits have collapsed from 24 vessels a day to near zero. Jebel Ali—the Middle East’s most connected container port, with throughput exceeding 19 million TEU in 2024—recorded zero container arrivals and zero departures in the week to 5 March. The biggest energy crisis since the 1973 oil embargo is no longer hypothetical. It is here.

What makes this crisis distinctive is not its military dimension but its financial architecture. Iran did not close Hormuz with a naval blockade, underwater mines, or salvos of anti-ship missiles. It closed it with a handful of drone strikes and a VHF radio broadcast. On 28 February, mariners in the strait received a message from the IRGC via the international distress frequency: navigation was forbidden until further notice. On 2 March, a senior IRGC official confirmed the closure, warning that any vessel attempting passage would be “set ablaze.” The threat was credible enough. At least five tankers have been struck, crew members killed, and the oil tanker Sonangol Namibe hit by a large explosion off Kuwait, triggering an environmental spill. But it was not the drones that sealed the strait. It was the insurers. Protection and indemnity coverage was withdrawn from 5 March. War-risk premiums, which had already surged from 0.125 per cent to between 0.2 and 0.4 per cent of hull value per transit—an increase of a quarter of a million dollars for a very large crude carrier—became irrelevant once underwriters simply refused to write the policy at any price. No insurance means no transit. The strait was closed not by military force per se, but by actuarial judgment.

The asymmetry between cause and effect is staggering. A few dozen drones costing perhaps tens of thousands of dollars each have triggered a market dislocation of historic proportions. Brent crude, which closed the week before the strikes at around $73 a barrel, surged past $92 by Friday 7 March—a 28 per cent weekly gain—and then rocketed a further 20 per cent in early Asian trading on Monday 9 March, breaching $108 a barrel for the first time since 2022. West Texas Intermediate posted a 35 per cent weekly gain, the largest in the history of the futures contract dating back to 1983. European natural gas futures nearly doubled within 48 hours of the initial strikes, LNG daily freight rates jumped more than 40 per cent, and Goldman Sachs warned that Brent could sustain above $100 if disruption persists for five weeks. As Helima Croft of RBC Capital Markets observed, all Iran had to do was conduct several drone strikes in the vicinity of the strait, and insurers and shipping companies decided it was unsafe to traverse the narrow S-curve of the waterway. The world’s most critical energy chokepoint was neutralised not by overwhelming force but by the calculated exploitation of commercial risk aversion.

The cascading effects are already severe and accelerating. Iraq, unable to export through Hormuz and running out of storage, has cut production by nearly 1.5 million barrels per day across its Rumaila, West Qurna 2, and Maysan fields—with Iraqi officials warning that cuts could exceed 3 million barrels per day within days if tankers remain unable to reach loading ports. Kuwait, OPEC’s fifth-largest producer at approximately 2.6 million barrels daily, has announced precautionary production cuts, beginning with 100,000 barrels per day and expected to nearly triple. Qatar halted LNG production at its two main facilities after Iranian drone strikes on Ras Laffan and Mesaieed. Saudi Arabia is rerouting some crude exports through the Red Sea port of Yanbu via its East-West Pipeline—a system with a theoretical capacity of 7 million barrels per day but terminal infrastructure that limits actual throughput far below that. JPMorgan estimates that total Gulf production cuts could exceed 4 million barrels per day by mid-March if the strait remains closed. Pakistan has formally requested Saudi Arabia redirect supplies through Yanbu. Japanese refiners, who source 95 per cent of their crude from Gulf producers and receive 70 per cent of it via Hormuz, have asked their government to release strategic stockpiles.

The geographic distribution of pain is starkly asymmetric. Asia absorbs the heaviest blow: roughly 84 per cent of crude oil and condensate transiting Hormuz in 2024 was destined for Asian markets. China, the world’s largest crude importer, routes approximately 40 per cent of its oil imports through the strait and draws 30 per cent of its LNG from Qatar and the UAE. India, with 60 per cent of oil imports originating in the Middle East, faces acute balance-of-payments pressure. South Korea’s net oil imports amount to 2.7 per cent of GDP. Thailand, with net oil imports at 4.7 per cent of GDP, may be the most vulnerable economy in Southeast Asia; Nomura estimates each 10 per cent rise in oil prices worsens Thailand’s current account by about half a percentage point of GDP. Europe, meanwhile, gets 12 to 14 per cent of its LNG from Qatar through the strait and 30 per cent of its jet fuel supply either originates in or transits via the waterway. The United States is less directly exposed, having weaned itself off Middle Eastern crude dependency, but it is not immune: global oil is a fungible market, and a supply shock of this magnitude reprices every barrel everywhere.

For those of us in the Gulf, the crisis is not abstract; it is at our doorstep. Jebel Ali’s Liner Shipping Connectivity Index stood at 791 in the fourth quarter of 2025—nearly double the next Gulf port. Over the past three years, as Red Sea disruptions pushed carriers to concentrate services in Dubai, the port became the indispensable node of Middle Eastern container logistics. That concentration, which looked like strategic advantage, has revealed itself as concentration risk. When Hormuz closed, every port behind it went dark: Jebel Ali, Khalifa Port, Hamad, Dammam. The combined liner connectivity of ports trapped behind the strait exceeds 1,500 points; what remains accessible outside—principally Salalah and Sohar—totals just 432. More than three-quarters of the region’s maritime connectivity has been severed. DP World says its terminals are “operating normally,” but there is a difference between a terminal that is operationally functional and one that ships can actually reach. Maersk, MSC, Hapag-Lloyd, and CMA CGM have all suspended Hormuz transits. MSC has halted all Middle East cargo bookings. The port is open; the sea road to it is not.

The system is trying to self-correct, and the limits of that correction are already visible. Saudi pipeline diversions, US naval escort proposals, Trump’s offer of political risk insurance through the Development Finance Corporation, strategic petroleum reserve releases in Japan and potentially China: these are all stabilising responses. But the system’s capacity for adjustment has hard boundaries. The DFC cannot feasibly underwrite all maritime trade in a war zone. Naval escorts recall the Tanker War of the 1980s but cannot eliminate the risk of cheap drone strikes on a narrow, contested waterway. Alternative pipeline routes cannot replace the full volume of Hormuz throughput. And crucially, insurance markets—the silent infrastructure of global trade—do not respond to political reassurances; they respond to actuarial probability. Until the probability of a vessel being struck falls materially, the strait remains commercially impassable regardless of what any government promises. As one Greek shipping CEO put it, the priority is not just moving cargo, but protecting the lives of seafarers, the value of vessels, and avoiding a major environmental disaster if a tanker is hit in such a narrow and sensitive waterway.

The geopolitical beneficiary is unmistakable. Russia’s competitive position in crude oil markets has improved materially overnight. With Middle Eastern barrels facing logistical disruption, both India and China face strong incentives to deepen reliance on Russian supply. India, facing the most acute near-term exposure, is likely to pivot immediately toward Russian crude. China, which had been moderating its intake of Russian oil, will almost certainly abandon that restraint if the conflict extends beyond a few weeks. The crisis thus delivers to Moscow precisely the market leverage that Western sanctions were designed to deny it. The irony is considerable: an operation partly aimed at neutralising Iran’s nuclear threat has, as a second-order effect, strengthened the geopolitical hand of the power that enabled Iran’s defiance in the first place.

For central bankers, the timing is brutal. Persistently higher oil prices feed directly into headline inflation, constraining the scope for interest rate cuts that both the Federal Reserve and the European Central Bank had been cautiously signalling. With Brent now trading above $100 and analysts warning of sustained triple-digit prices if the strait remains closed—Goldman Sachs has explicitly flagged this scenario—the disinflationary trajectory that monetary policymakers had been counting on is in ruins. The phrase “stagflationary shock” has not been used in a G7 communiqué since 2022. It may soon reappear.

And then there is the dimension that few in financial markets are yet adequately pricing: food security. Approximately 33 per cent of the world’s fertiliser trade—including sulphur, ammonia, and urea—transits the Strait of Hormuz. Nearly 30 per cent of global ammonia production and fully 50 per cent of urea output are either involved in or at risk from this conflict. These are not luxury commodities; they are the inputs upon which global agricultural productivity depends. If the strait remains closed through the planting season in the Northern Hemisphere, the ripple effects will extend from commodity trading desks to subsistence farms in South Asia and sub-Saharan Africa. The market has repriced oil and gas. It has not yet fully repriced food.

© The Times of Israel (Blogs)