In a normal year, war-risk insurance for a transit through the Strait of Hormuz costs a shipowner between 0.15% and 0.25% of hull value — roughly $300,000 to $500,000 for a $200 million VLCC. By early March 2026, after the US-Israel air war on Iran began and the Islamic Revolutionary Guard Corps confirmed the closure of the strait, that same coverage briefly hit 5% of hull value per transit. That’s a 25-fold increase, or roughly $10 million to insure a single passage.
By late March, premiums had eased back to about 1% — still eight times the pre-war norm. The market did not stabilize because the risk had decreased. It stabilized because most underwriters simply stopped writing the cover at all. The US Treasury’s International Development Finance Corporation had to backstop the market with up to $40 billion in reinsurance capacity, with Chubb leading a $20 billion facility.
This article looks at why the private insurance market alone cannot price chokepoint risk efficiently — and why the Hormuz toll model’s 4% war-risk surcharge is structurally a better tool for the same problem.
Why insurance markets fail at chokepoints
War-risk insurance has three structural problems when applied to a single waterway under acute geopolitical stress:
1. Reflexive pricing
Insurance premiums respond to news events, not to physical risk reduction. When the IRGC announced mine warnings on 2 March 2026, premiums spiked the same day — before any actual change in the threat environment. When Iran-Oman protocols were announced, premiums eased before any verifiable security improvement. The market is reflexive: it prices the headlines, not the hulls.
2. No funded mitigation
An insurance premium pays for losses, not for prevention. When a shipowner pays $10 million in war-risk premium for a single VLCC transit, that money goes into reinsurance pools and underwriter profit margins. None of it funds escort tugs, mine-clearance capacity, additional VTS coordinators, or rapid-response vessels in the strait. The money flows out of the maritime sector entirely.
3. Capacity withdrawal
When risk gets too high, insurers don’t reprice — they exit. By mid-March 2026, S&P Global reported that “marine war insurance for Hormuz dries up.” The traffic collapse was not because shipowners couldn’t afford the premiums. It was because there were no premiums to pay; cover was simply unavailable. The market’s failure mode is binary: covered or uncovered.
How a structured war-risk surcharge differs
The toll system’s war-risk surcharge takes a different approach. It is a 4% surcharge applied to the sub-total when elevated security conditions are in effect. For a typical Suezmax tanker paying a base toll of $250,000, that’s a $10,000 war-risk component — a fraction of the $1 million-plus that private insurance was charging at the peak of the 2026 crisis.
The structural differences are significant:
- The funds stay in the system. War-risk surcharge revenue flows directly to the security operations the strait requires: patrol assets, escort coordination, mine-clearance equipment, surveillance infrastructure. Every dollar collected is a dollar deployed against the underlying risk.
- The pricing is administered, not reflexive. The 4% rate is set in advance, published in the rate schedule, and adjusted through formal review. It does not spike on Twitter rumors or ease on press conferences. Vessels can plan voyages knowing exactly what the premium will be.
- Capacity does not collapse. Because the surcharge is collected by the toll authority — not a private underwriter making a quarterly P&L decision — the system cannot simply “exit.” It continues to operate during exactly the periods when private cover withdraws.
Insurance still has a role — but a smaller one
None of this argues that war-risk insurance disappears. Hull damage, cargo loss, and crew injury claims will always need underwriting. But under a structured toll regime, insurance covers residual risk — the portion that escort capacity, surveillance, and security operations cannot eliminate. The toll system reduces the risk pool insurers have to underwrite, which lowers premiums for everyone, even before any single transit takes place.
The 2026 crisis revealed what happens without that structure: insurance becomes the only line of defense, premiums spike to the point of choking traffic, and governments end up backstopping the market because no other mechanism exists. The DFC’s $40 billion facility is, effectively, a public-sector toll system — just deployed reactively, after a crisis, rather than as standing capacity.
The arithmetic of structured pricing
A worked comparison makes the point. Consider a 300,000 DWT VLCC transiting the Strait of Hormuz under elevated-threat conditions:
- Base toll (Mega class fixed fee + capacity-based component on ~95,000 SCNT): ~$600,000
- Toll war-risk surcharge (4%): ~$24,000
- Toll escort tug fee (flat): $25,000
- Total toll-side war-risk cost: ~$49,000
By contrast, the same vessel buying war-risk insurance at the March 2026 peak (1% of $200M hull) paid $2,000,000 per transit — roughly 40 times higher — with none of that money funding any actual security capability in the strait. The toll structure delivers the same risk-management function at less than 3% of the cost, with the residual flowing back into the safety of the waterway itself.
Try the math yourself in the toll calculator. Enable the war-risk and escort-tug toggles to see how the surcharges compose for your vessel profile.