What Has to Happen Before Oil Flows Through Hormuz Again — And Why It's Harder Than It Looks

The Baseline: Where Things Stand

Daily transits through the Strait of Hormuz have fallen approximately 90 to 95 percent since the Iran war began on February 28, according to shipping intelligence firm Kpler, per CBS News. The strait normally carries around one-fifth of the world's oil, per CBS News, and handled approximately 120–130 ships per day before the conflict.

The shutdown is not total. Iran has established a controlled passage system — vessels that submit cargo manifests, crew lists, and destinations to IRGC-approved intermediaries, receive a clearance code, and pay a reported $2 million per transit can proceed. As of March 27, approximately 150 vessels had made it through since the war's start, per Al Jazeera — roughly equal to one normal day's traffic across the entire month.

More than a dozen Iranian drone and missile strikes have been reported on ships in the region, per CBS News citing UKMTO (United Kingdom Maritime Trade Operations) incident data. The IMO confirmed 18 incidents of damage to commercial vessels between March 1 and 19 alone, per its own records cited by NBC News.

The Insurance Collapse — and the U.S. Response

When Iran attacks began, war risk insurance for ships transiting Hormuz — which normally cost "a fraction of a percent" of vessel value before the war — jumped to 1 to 2 percent during the war's first week and has since climbed to anywhere from 3.5 percent to 10 percent of the total value of the vessel, according to David Smith, head of marine at London-based insurance brokerage McGill and Partners, per CBS News. For a tanker worth $100 million, 10 percent coverage means $10 million in insurance premiums for a single transit.

An additional structural problem emerged early in the conflict. Protection and indemnity (P&I) clubs — the mutual insurers that cover oil pollution liability and crew welfare — removed war risk coverage for the Strait of Hormuz on approximately March 5, per Wikipedia's Hormuz crisis article. P&I insurance is mandatory for ships transporting oil; without it, a tanker that is struck and causes a spill faces potentially unlimited liability. This removal made the insurance gap effectively unbridgeable for most owners regardless of premium cost.

In response, the U.S. government moved to fill the gap. On March 11, the U.S. International Development Finance Corporation (DFC) announced a $20 billion Maritime Reinsurance plan, naming Chubb — the world's largest publicly traded property and casualty insurer — as lead underwriter, per Insurance Journal and Chubb's own press release on March 20.

Chubb outlined the facility's structure: it would provide war hull risk insurance, war P&I insurance, and war cargo insurance for eligible vessels. Chubb would manage pricing, terms, and claims; the DFC would coordinate a consortium of American reinsurers. Originally covering only hull and cargo, the program was expanded on March 20 to include P&I liability — a critical addition after Moody's stated that exclusion of liability would be "a deal-killer" for most shipowners moving crude oil through Hormuz, due to the catastrophic pollution liability risk if a laden tanker were struck by a mine or drone, per Insurance Journal citing Moody's.

Treasury Secretary Scott Bessent said the program would begin "soon," per Bloomberg on March 26. As of this article's publication, specific eligibility criteria for vessels seeking coverage had not been publicly disclosed, per Insurance Journal.

The Problem: Insurance Is Not the Bottleneck

Shipping and insurance experts interviewed by CBS News were consistent in their assessment: the $20 billion insurance facility, while useful, does not address the reason ships are not transiting Hormuz.

David Smith of McGill and Partners told CBS News: "Insurance isn't the gatekeeper. It's still that reluctance to place [on the line] an asset and human beings who didn't sign up for this."

Matt Wright, principal freight analyst at Kpler, told CBS News that while insurance premiums are exceptionally high, the rates tankers can charge in the Persian Gulf market "more than make up for it." The financial incentive to transit, in other words, is present. The physical risk to ships and crews is not a financial calculation — it is a safety one.

Daniel Sternoff, an analyst at Energy Aspects and senior fellow at Columbia University's Center on Global Energy Policy, framed the core condition in blunt terms for CBS News: "You need to not have fast-moving pointy bits of metal with explosives bearing down onto you at 2,000 miles an hour."

Insurance Journal, citing military experts, noted that commercial shipping is "unlikely to restart without a ceasefire."

What Would Actually Unlock Hormuz

CBS News and multiple shipping experts outlined the sequence of conditions that would need to be met for normal shipping to resume:

1. An end to active Iranian attacks on vessels. This is the threshold condition. Iran has been attacking ships it deems to be carrying cargo for "hostile" parties. Until that stops — either through a ceasefire, a negotiated arrangement, or the military defeat of Iranian strike capacity — no insurance program will persuade shipping companies to risk their crews.

2. P&I insurance restoration by clubs. The major P&I clubs that withdrew war risk coverage in early March would need to restore it. The DFC/Chubb facility partially addresses this through the U.S.-backed P&I war risk component, but it is unclear whether that coverage is sufficient in scale or whether P&I clubs independent of the U.S. program will restore their own coverage.

3. Military escort or security guarantee. Trump administration officials have discussed offering military escorts for commercial tankers, per CBS News, though the specific modality — which navy, which routes, which vessels would qualify — has not been determined. The U.S. military's primary focus remains air operations against Iran and force protection for existing bases. Britain offered on approximately March 27 to host an international security summit to draw up what it described as "a viable, collective plan" to reopen the strait, per the Guardian, but no summit date was announced.

4. Mine clearance. On approximately March 24, Iran's Defense Council threatened to deploy naval mines across "the entire Persian Gulf" if the U.S. attempted a ground invasion, per ABC News. Whether mines have already been laid is unclear from publicly available information. If naval mines are deployed, their removal — or the credible assurance that a corridor is mine-free — becomes an additional prerequisite for shipping resumption.

What the Insurance Market Is Telling Us

Insurance markets price risk in real time and are often a leading indicator of how participants assess the probability of events. The current state of the Hormuz insurance market tells a specific story.

The fact that war risk insurance remains available at all — at 3.5 to 10 percent of vessel value — means the insurance industry has not concluded that transit is impossible, only that it is very expensive. Smith of McGill told CBS News that "war insurance has remained available through the conflict, with insurers willing to underwrite that business."

The DFC/Chubb $20 billion program could provide meaningful price competition in this market if structured correctly. However, Moody's noted that until the program's specific eligibility criteria and claims processes are published, shipowners cannot assess whether it actually reduces their net risk exposure. Insurance Journal noted that as of March 23, the eligibility criteria had still not been disclosed.

The underlying dynamic is straightforward: the program can theoretically cover the financial cost of a ship being destroyed. It cannot cover the human cost of crew members being killed. And it cannot eliminate the physical danger that makes crews and their companies unwilling to attempt the transit regardless of insurance coverage.

The Historical Parallel: The Tanker Wars (1984–1988)

The current situation has a historical precedent. During the Iran-Iraq War, both Iran and Iraq attacked tankers carrying the other's oil in what became known as the "Tanker War" — a subset of the broader conflict from approximately 1984 to 1988. During that period, the United States reflagged Kuwaiti tankers as American vessels and provided naval escorts through the Persian Gulf in Operation Earnest Will, the largest naval convoy operation since World War II.

The reflagging and escort operation did not end Iranian attacks immediately — the USS Stark was struck by Iraqi missiles in May 1987 and the USS Samuel B. Roberts hit an Iranian mine in April 1988 — but it established that the U.S. military could and would escort commercial shipping through a live war zone.

Whether a comparable military escort operation is operationally feasible given current U.S. force commitments — including two carrier strike groups and more than 50,000 troops already in the region — and whether Iran would accept it or escalate against the escorts, has not been publicly determined as of this writing.