The wrong bottleneck

Most of the commentary about Hormuz has focused on insurance. The P&I clubs cancelled war risk cover, traffic stopped, and the natural conclusion was that insurance was the binding constraint. Fix the insurance, and the ships move again.

I don't think that's quite right. Insurance matters, obviously — you can't trade a vessel without it. But the insurance problem, even at its most expensive, is a rounding error compared to the problem that nobody seems to want to talk about in plain terms: the freight market was already running at its strongest levels in over a decade before a single missile was fired, and a VLCC takes roughly three years to build.^[3][4]

The shipowner's calculation is not "can I get insured?" It's "is the expected value of sending my $120 million asset through an active war zone positive, given that I cannot replace it at any price for three years, during what may be the best freight market of my career?"

The answer, for most owners, is no. And no amount of insurance restructuring changes that math.

The freight market nobody wants to lose

Here's the context that gets buried under the geopolitics.

2025 was the best year for tanker earnings in a decade.^[3] VLCC spot earnings averaged $44,279 per day year-to-date through October, the best since 2015, and peaked above $100,000 per day in November.^[2] Suezmax rates from the US Gulf Coast to Europe doubled year-on-year. The ordering book for crude tankers hit its highest level since 2008 — roughly 24.4 million deadweight tonnes contracted in 2024 alone.^[15]

The structural drivers were all pointing in the same direction: sanctions had removed roughly 200 VLCCs from normal market participation (about 23% of the global fleet), long-haul trade routes were stretching average voyage distances, Chinese crude imports were climbing past 12 million barrels per day, and fleet growth was negligible.^[15] Before the war, analysts were calling this the beginning of a tanker "super-cycle." The word was used without irony.

Then the Hormuz crisis hit, and VLCC spot rates went to $424,000 per day — an all-time record, roughly ten times the January level.^[1] Some fixtures have since printed above $600,000.^[11]

Now think about this from the owner's side. You have a vessel earning, let's say, $80,000-100,000 per day on safe routes — already a generational rate. Someone offers you $424,000 per day to send it through a strait where Iran has explicitly promised to fire on any vessel that transits. The premium sounds extraordinary until you do the other calculation.

The replacement problem

A VLCC costs roughly $120 million to build. Current newbuild delivery times for crude tankers average about 2.7 years from order to delivery, and that number has been extending — 20% of the current global orderbook won't deliver for more than three years.^[4][5] Yards in China, South Korea, and Japan are booked through 2028. Second-hand prices are at decade highs.^[6]

So here's the logic ladder:

1. You own a VLCC earning $80,000-100,000 per day on routes that don't involve anyone shooting at you.
2. Someone offers you $424,000 per day to transit Hormuz.
3. If your vessel is damaged or sunk, insurance (assuming you have it) pays you the insured value — let's say $120 million.
4. You take that $120 million and try to order a replacement. Earliest delivery: 2029.
5. For three years, you earn nothing, during the strongest freight market in a generation.
6. Three years at $80,000 per day is roughly $87 million in foregone earnings. At the crisis rates, it's multiples of that.
7. So the "insurance pays for it" scenario actually costs you your vessel, three years of peak-market income, and — not incidentally — the lives you're responsible for.

Insurance makes you whole on the hull. It does not make you whole on the opportunity cost. And it certainly does not make anyone whole on twenty-five crew members.

The crew question

I don't want to moralize — that's not what this newsletter does. But the incentive structure here is worth stating plainly.

A shipowner who sends a vessel through Hormuz is asking a crew of roughly 25 people to transit a strait where a state actor has declared it will use lethal force against any vessel. The crew doesn't earn $424,000 per day. The crew earns its normal wages. The risk premium accrues to the owner and the charterer, not to the people physically on the ship.

This creates a structural asymmetry that most owners — even the aggressive ones — are unwilling to accept. The legal liability is one dimension. The reputational risk is another. But at the simplest level: you cannot pay a bonus large enough to make "we'll send you through an active war zone" an attractive employment proposition, and if you lose crew members, no amount of freight revenue will offset the consequences.

This is the constraint that doesn't show up in the rate tables.

Insurance rates: important but not the main event

Let me be precise about the insurance numbers, because they've been presented as though they're the primary obstacle.

Before the crisis, war risk premiums ran at approximately 0.2% of hull value for a Hormuz transit. For a VLCC insured at $120 million, that's about $240,000 per transit. After the P&I clubs cancelled cover and the few remaining underwriters repriced, the premium jumped to roughly 1% — about $1.2 million per transit.^[1]

That's a meaningful increase. A million dollars is real money. But look at it in context: the freight rate went from roughly $40,000 per day to $424,000 per day. A single-voyage rate on a 30-day round trip to China went from roughly $1.2 million to $12.7 million. The insurance premium increase — about $960,000 — is less than 8% of the freight cost increase. It's a line item, not a deal-breaker.

The deal-breaker is everything else: the physical risk to the vessel, the irreplaceability of the asset, the opportunity cost of losing three years of peak earnings, and the crew. Insurance is the thing that made the headlines because it's the mechanism that formally stopped traffic — when the P&I clubs pulled cover, vessels legally couldn't transit. But even if the cover were reinstated tomorrow at the old rates, most owners would still keep their ships anchored outside the strait.

The distinction matters for policy.

Why government insurance guarantees don't help

President Trump directed the US Development Finance Corporation to provide "political risk insurance and guarantees" for vessels transiting the Gulf, at a "very reasonable price."^[10]

The idea is straightforward: if the private market won't insure the transit, the US government will. This should, in theory, remove the legal obstacle — vessels would have coverage and could technically enter the strait.

But the shipowners' response has been, to put it politely, muted.^[8][7]

The problem is that government insurance solves the wrong constraint. It addresses the question "can I get coverage?" when the operative question is "should I send my ship?" As one shipowner told Lloyd's List: escorting or insuring a vessel doesn't tempt anyone through while combat operations are still taking place.^[12]

The DFC mechanism also has structural problems. The coverage terms are undefined. The claims process is untested. Shipowners and their lenders need to know — in contractual detail — what happens when a VLCC takes a missile hit: how quickly does the claim pay, does it cover consequential losses, does it cover crew injury and death, does it satisfy the lender's covenant requirements? A press conference is not a policy wording. And banks don't accept presidential announcements as collateral substitutes.^[13]

Why warship escorts actually might

Here's the asymmetry that matters.

Government insurance guarantees change the financial risk profile of a transit. They say: "if something goes wrong, you'll be compensated." That's useful, but it doesn't change the probability that something goes wrong. The expected loss is still the same. You've just shifted who bears it.

Warship escorts change the physical risk profile. A VLCC transiting Hormuz alongside a US Navy destroyer is materially less likely to be hit by a drone, missile, or mine than one transiting alone. The escort doesn't eliminate the risk — nothing eliminates the risk in an active conflict zone — but it reduces the probability of the bad outcome, rather than merely compensating for it after the fact.

This is why the escort announcement, despite all the skepticism about capacity and logistics, was received differently from the insurance announcement by actual shipowners. One addresses consequences. The other addresses probability. And when the downside scenario is "my ship sinks, my crew dies, and I lose three years of the best market in a generation," owners are rationally more interested in reducing the probability than in improving the payout.^[9]

The practical problem with escorts is scale. The US Navy has told the shipping industry privately that it doesn't currently have the availability to provide escorts — it's busy fighting a war.^[12] There are also legal constraints: US law restricts naval escorts to US-flagged or US-owned vessels, or those with US crew. The global VLCC fleet is overwhelmingly foreign-flagged.

But the principle stands. If the objective is to restart Hormuz traffic, the binding constraint is physical security, not financial coverage. Insurance is necessary but not sufficient. Escorts are the thing that might actually move the needle.

The price that would make it work

So what would it take to get ships moving through Hormuz again?

There are really only two paths. The first is that the shooting stops, a ceasefire holds, and the P&I clubs gradually reinstate cover over a period of weeks as the risk profile normalizes. This is the scenario where insurance is the binding constraint, because the physical risk has been removed and the only remaining obstacle is the coverage gap. Markets can solve this one relatively quickly.

The second path — the one where military operations continue — requires the economics to become so compelling that owners accept the physical risk despite everything I've described above.

What does that look like? The price of crude oil or LNG would need to appreciate enough that importers — the charterers who ultimately pay the freight bill — are willing to pay multiples of the already-record freight rates and absorb the higher insurance premiums and offer enough premium to compensate owners for the asset risk and opportunity cost.

Brent has moved from roughly $73 to about $93 per barrel — a 27% increase.^[16] That's significant in normal times. But the freight cost alone has increased by roughly 10x. A barrel of oil that cost $73 plus maybe $2 in freight a month ago now costs $93 plus maybe $8 in freight (if you could even get a vessel to carry it). The total landed cost has increased by maybe 35-40%.

For that math to work for an importer — for a refinery in Yokohama or Ulsan or Jamnagar to say "yes, I will pay this" — crude would probably need to be well above $100, possibly $120 or higher, on a sustained basis. And the importer would need to believe that the freight market won't normalize quickly enough to make patience the better strategy.

We're not there yet. The price has moved, but not enough to overcome the shipowner's rational preference for earning $80,000 per day on safe routes over earning $424,000 per day on routes where someone is actively trying to sink you.

The structural point

The Hormuz crisis has revealed something that commodity analysts and geopolitical commentators tend to miss: the shipping market is not a utility. It is not a public service that scales up on demand. It is a collection of privately owned, irreplaceable, long-lead-time physical assets operated by people who have their own risk preferences, their own income statements, and their own crews.

You cannot make ships transit a war zone by offering insurance. You can make the insurance technically available — the government can write the policy, set the premium, announce it on Truth Social — and the ships will still sit outside the strait, earning excellent money on routes that don't involve being shot at.

The only things that reliably restart traffic through a contested chokepoint are, in order: a ceasefire, physical security guarantees backed by actual military assets, and — only then — a functioning insurance market that formalizes the reduced risk into a coverage product that lenders and P&I clubs will accept.

We have none of these yet. We have a war, a press conference, and the best freight market in a generation.

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Things happen

Roughly 20.5 million barrels per day transited Hormuz in 2025, about one-fifth of global supply.^[14] The global VLCC fleet consists of roughly 870 vessels, of which about 200 are sanctioned or in shadow-fleet service. Average VLCC build time has increased by approximately one year since 2021. South Korean refiners have chartered VLCCs at $424,000 per day for 60-day terms — total charter cost north of $25 million per vessel. The International Maritime Organization's guidelines on transit through war risk areas run to four pages. The last comparable disruption to Hormuz transit was the Tanker War of 1987-1988, during which the US Navy's Operation Earnest Will escorted reflagged Kuwaiti tankers. That operation involved roughly 30 warships. The current US Fifth Fleet is considerably smaller. Japan imports approximately 90% of its crude oil from the Middle East. The word "chokepoint" appears in 847 EIA publications.