MC EXPLAINER Why India is seeking US clarity on insurance cover for ships passing through the Strait of Hormuz

Strait of Hormuz

• India seeks US clarification on Hormuz Strait ship insurance
• Rising tensions raise war-risk insurance costs for Gulf shipments
• India's energy supply and fuel prices may face disruption.

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India has reportedly approached the United States seeking clarity on a proposed insurance mechanism for ships passing through the Strait of Hormuz as escalating geopolitical tensions in West Asia threaten global shipping and energy flows.

The discussions come amid fears that the withdrawal of war-risk insurance and rising maritime security risks could disrupt crude oil shipments to India, which relies heavily on supplies from the Gulf.

Why is the Strait of Hormuz critical for global energy trade?

The Strait of Hormuz is one of the world’s most important energy chokepoints. Around 20 million barrels of oil pass through the strait every day, accounting for roughly one-fifth of global oil trade. For India, the corridor is particularly crucial because around half of its crude oil imports move through this route, mainly from Gulf producers such as Saudi Arabia, Iraq, Kuwait and the United Arab Emirates. Since India imports about 85–88 per cent of its crude oil needs, any disruption in this corridor can quickly affect domestic fuel supply and prices.

What has raised concerns about shipping through the strait?

Rising tensions between Iran and the United States have heightened fears of attacks on commercial vessels or temporary restrictions on shipping through the strait. Such geopolitical tensions often lead to security incidents involving oil tankers and cargo ships, increasing risks for vessels operating in the region. As a result, some ships have delayed, diverted, or reconsidered voyages through the route due to security concerns.

Why are insurers withdrawing or raising coverage?

Marine insurance is essential for global shipping because vessels cannot operate without coverage for risks such as war, damage, cargo loss and liability. When a region is considered a high-risk war zone, insurers typically impose additional war-risk premiums. Amid the current tensions, war-risk insurance premiums for ships travelling through the Gulf have surged sharply. Rates that were earlier about 0.25 percent of a vessel’s value have risen significantly, increasing the cost of a single voyage for large tankers. In some cases, insurers have also withdrawn coverage entirely, which can effectively halt shipping activity since ships cannot sail or dock at ports without valid insurance.

Why is India engaging with the United States?

India is seeking clarity from the US on a proposed insurance mechanism that could provide coverage or financial guarantees for ships passing through the Strait of Hormuz. The plan could involve support from the US International Development Finance Corporation, which may help provide insurance backing or financial support to ensure the continued flow of trade through the Gulf. New Delhi wants to understand whether such a mechanism would cover ships carrying Indian cargo or chartered by Indian companies, and how it would work in practice.

What could be the implications for India’s energy security?

Any prolonged disruption in the Strait of Hormuz could significantly raise freight costs, increase oil prices and disrupt India’s energy supply chain. Higher shipping costs could translate into more expensive crude imports, which may widen India’s trade deficit, add to inflationary pressures, and eventually affect domestic fuel prices. For policymakers, ensuring that oil shipments from the Gulf continue to move smoothly through the strait is therefore critical for India’s energy security and economic stability.