The sea’s invisible master
Most people assume global shipping is controlled by fleets, ports or naval power. In reality, the system is governed by something far less visible: insurance.
Every commercial vessel sailing the oceans depends on three things: financing to build the ship, insurance to cover operational risks and certification from classification societies confirming that the vessel meets international safety standards. Remove any one of these and the ship cannot operate. Ports refuse entry. Canal authorities deny passage. Cargo owners cancel contracts. Banks withdraw financing.
In practice, the global maritime system is governed through three quiet choke points: ship financing; marine insurance; and classification societies. Together, they regulate almost the entire global fleet. Among these, insurance has become the most powerful and least understood lever.
The modern shipping industry depends on a relatively small network of marine insurers and reinsurers that provide coverage for most of the world’s ocean-going tonnage.
At the centre of this system sits the historic London insurance market, particularly Lloyd’s of London. The institution traces its origins to the late seventeenth century when merchants and shipowners gathered at Edward Lloyd’s coffee house to insure voyages across dangerous seas. Over time, that informal marketplace evolved into the world’s most influential maritime insurance hub, pricing risk for everything from cargo voyages to oil tankers and war zones.
Every container ship, oil tanker, LNG carrier and offshore platform must carry insurance before it can operate. Behind these insurers sits global capital. Reinsurance firms, investment funds and institutional investors provide the financial backing that allows insurers to underwrite massive maritime risks. This structure means global finance quietly sits behind the movement of international trade.
The system becomes most visible during war. When geopolitical tensions rise in critical shipping lanes, insurers immediately increase war risk premiums. Risk itself becomes a commodity that can be priced and sold.
The current crisis in the Strait of Hormuz offers a vivid example. Under normal conditions, war risk premiums for ships transiting the Gulf were almost negligible, typically ranging between 0.01% and 0.05% of a vessel’s hull value per voyage. By early 2025, as tensions rose, those rates had already climbed to between 0.125% and 0.25%. For a tanker worth $100 million, that meant roughly $75,000 in additional insurance costs per voyage. Uncomfortable, but still manageable.
The turning point came in June 2025 following US airstrikes on Iranian nuclear facilities. Within days, premiums jumped again, reaching between 0.2 and 0.4% of vessel value, with ships linked to Israel or its allies quoted as high as 0.7%, translating into an additional $200,000 to $360,000 per voyage for a large crude carrier.
With full escalation, many insurers cancelled war risk coverage entirely. Those that remained shifted to seven-day policies priced at roughly 1% of hull value – four times the already elevated prewar rate. Some quotes now range between 1% and 5%, and up to 10% for vessels with specific national affiliations. For the owner of a $130 million tanker, a single Gulf transit can now carry an insurance bill exceeding $1.3 million.
With the full escalation of war, the Strait of Hormuz effectively faced closure during a regional conflict for the first time in recent decades. At least five tankers were damaged, two crew members were killed and roughly 150 vessels were stranded nearby as insurers reassessed the risk environment. Shipping economics reacted accordingly. Daily charter rates for oil supertankers operating in the region surged to nearly $800,000 per day, almost four times previous levels.
What makes the current crisis unusual is that even during earlier regional conflicts, the Strait of Hormuz was never fully disrupted. Iran did not close the strait during the Iran-Iraq war, the Gulf War or the 2019 US-Iran tensions. The present conflict has disrupted maritime logistics in a way rarely seen in recent decades.
The financial implications extend far beyond shipping companies. When insurance costs surge, the shock moves through global supply chains, pushing up freight rates, energy prices and ultimately the cost of goods for consumers around the world.
The response from financial markets has been equally extraordinary. Analysts estimate that the total insurance coverage gap in the Gulf now exceeds $350 billion for roughly 329 vessels currently operating in the region. These numbers reveal a deeper truth about global trade: insurance does not merely protect shipping; it determines whether shipping can function at all.
For countries like Pakistan, this reality carries direct consequences. Pakistan’s economy depends overwhelmingly on maritime trade, yet most of its shipping risks are insured in foreign markets. Every escalation in the Persian Gulf therefore translates into higher freight costs, higher insurance premiums and additional pressure on foreign exchange reserves. When risk pricing is determined thousands of miles away in global insurance markets, countries that rely entirely on external coverage have little control over the cost of transporting their own trade.
There is also a deeper financial dimension that rarely enters public discussion. The insurers underwriting maritime risk do not operate in isolation. Their capital is backed by large reinsurance companies and institutional investors whose portfolios simultaneously span insurance, energy, logistics and defence. Firms like BlackRock, Vanguard Group and State Street Corporation rank among the largest shareholders across all of these sectors. No coordination is required for interests to align. When geopolitical crises drive insurance premiums higher, the financial gains circulate within the same concentrated pool of global capital that finances the wider war economy. The architecture does the work that no conspiracy needs to.
The American response revealed how central insurance has become to modern maritime conflict. Washington moved to stabilise the market through the US. International Development Finance Corporation, launching a $20 billion sovereign reinsurance facility to ensure ships could still obtain coverage while transiting the Gulf. The chosen lead underwriter was Chubb Limited, one of the world’s largest property and casualty insurers, a major participant in the Lloyd’s of London market, and a company whose shareholder base, like most large insurers, is dominated by BlackRock, Vanguard and State Street. The same institutional capital that profits when premiums rise is now being called upon to stabilise the market when they rise too far. The huge circle is actually a small one.
But the need for such intervention exposes how effectively Iran has exploited the financial architecture of global shipping. By pushing war risk premiums from around 0.25% of hull value to several per cent, and in some cases forcing insurers to withdraw coverage entirely, Tehran has managed to disrupt traffic through the strait without imposing a traditional naval blockade. When insurance becomes unavailable or prohibitively expensive, shipowners simply stop sailing. In that sense, Iran has demonstrated that a strategic chokepoint can be constricted not only with missiles and mines, but by turning the insurance market itself into a weapon.
The sea may appear open and borderless, but the system governing it is highly concentrated. A small network of financial institutions prices the risks of global trade, determines the cost of maritime transport and ultimately decides which shipping routes remain economically viable.
Wars may be fought with missiles and fleets. But the economics of those wars are often decided in financial boardrooms. The world believes shipping is controlled by ships when it is really controlled by those who insure them.
The writer is a former federal minister of maritime affairs. He tweets/posts @AliHZaidiPTI
Disclaimer: The viewpoints expressed in this piece are the writer’s own and don’t necessarily reflect Geo.tv’s editorial policy.
Originally published in The News
