How Insurance Became Iran’s Weapon of Choice! |
As the war unfolded across the Middle East in late February 2026, chaos erupted in a usually quiet corner in London when the Joint War Committee (JWC), a small group of underwriters and lawyers operating under Lloyd’s, one of the world’s leading specialist insurance and reinsurance markets, dubbed the Strait of Hormuz as a War Risk Zone. When the JWC designates an area as a “war risk”, the consequences are felt instantly across global trade. Following this designation, ship owners are obligated to buy additional war risk insurance before entering or exiting the designated region. Iran has effectively weaponised the very system which was developed by the West to keep its cargo financially safeguarded, causing ripple effects across the world.
Following the JWC’s designation, ship owners scrambled to secure coverage, leading to a transformation of the economics of shipping in the region almost overnight. Prior to the onset of the war, the war-risk premiums for vessels transiting through the Persian Gulf were 0.1-0.25 per cent of the ship’s value. While this may appear small, considering that a typical large crude oil carrier is worth between $100-300 million, the numbers quickly add up. A seemingly minor surcharge per voyage can become even more significant when multiplied across dozens of vessels carrying billions of barrels of oil.
Once the JWC declares an area as a war zone, these premiums skyrocket to between 1 and 3 per cent of the vessel’s value, transforming a routine trip into a multi-dollar gamble with extreme cases leading to the insurer cancelling or pausing the coverage within 48 hours. Without insurance, ships cannot legally sail, cargo contracts become void, and banks refuse to finance these operations. Suddenly, a sea route that is still geographically open becomes economically blocked.
This is where the genius of the Iranian strategy becomes truly visible: it does not need to physically block the Strait of Hormuz or sink a tanker passing through it to showcase its military might. It only needs to create enough instability or chaos to trigger these financial fail-safe mechanisms to stop the shipping process on its own. In this respect, even minor incidents can have far-reaching consequences, forcing insurers to either pull coverage completely or hike the premium to astronomical levels. This has been the case since the start of the Middle Eastern conflict, and it is only likely to get worse from here on out.
Iran does not need to physically block the Strait of Hormuz or sink a tanker passing through it to showcase its military might. It only needs to create enough instability or chaos to trigger financial fail-safe mechanisms to stop the shipping process on its own.
Iran does not need to physically block the Strait of Hormuz or sink a tanker passing through it to showcase its military might. It only needs to create enough instability or chaos to trigger financial fail-safe mechanisms to stop the shipping process on its own.
The ensuing consequences for the energy markets have been immediate and widespread. Close to 20 per cent of the world’s oil supply passes through the Strait of Hormuz, making it one of the most critical choke points in global trade. As the insurance premium surged, operators started delaying shipments, consequently reducing supply in the short term, thus driving up the price. Since the onset of the conflict, the war risk spike has stranded more than 150 vessels in or near the Gulf, disrupting not only the supplies of crude oil but also liquefied natural gas as well as other commodities. The freight rates for tankers have soared as well, leading to shipowners demanding higher compensation for operating in a region which has become commercially too risky.
The effects of this development extend far beyond shipping. As the cost of transportation rises, so too does the global price of energy items, consumer goods, agricultural fertilisers, and other essential products. Even slight disruptions to the Persian Gulf supply chain can feed directly into inflation pressure, which has reverberating impacts across Europe, Asia and North America. This highlights how regional instability can have disproportionate global consequences.
Iran’s approach, thus, exemplifies a new type of strategic leverage in modern conflicts, one which does not focus only on militarily subduing the enemy, but also strangulating it through financial infrastructure, market psychology and risk management systems. By exploiting the JWC’s authority and the sensitivity of the global insurance market to even slight changes, Iran has been able to exert pressure on the global economy without firing a single shot at any of the civilian vessels.
This strategy reflects decades of strategic adaptation stemming from living under sanctions, which forced Iran to develop a sophisticated understanding of the global financial grey zones and alternative economic networks. This experience is now allowing Iran to weaponise the market mechanisms, which were originally intended to safeguard the West. In essence, the very system built by the Western economies to safeguard commerce has now become a tool of asymmetric influence by Iran.
This is also a lesson in military power. No matter how advanced the Western military capabilities are against Iran, they can still be brought to their knees through economic strangulation, as no military strategy can compel the global insurers to underwrite risk. In this present conflict, the kill switch does not lie in missile batteries but in quiet offices in London, where a handful of people control the very fate of global commerce.
The writer is a Senior Research Associate at the Centre for Aerospace and Security Studies, Lahore. She can be reached at info@casslhr.com