What Happened
- As the West Asia conflict escalated and the Strait of Hormuz was effectively blocked, war risk insurance premiums for commercial shipping spiked sharply, compounding the impact of route disruptions on global trade.
- Insurance premiums for a single voyage through high-risk zones rose to as much as 2% of vessel value — up from pre-crisis levels of around 0.3%, representing a rise of approximately 2,700% at the peak for some Red Sea routes.
- For a ship valued at $100 million, this translated to a voyage insurance cost of up to $2 million, versus approximately $300,000 under normal conditions.
- Freight costs — already elevated from the 2024 Red Sea/Houthi crisis — rose further as insurers paused cover for some voyages and shippers diverted around the Cape of Good Hope.
- The crisis highlighted India's exposure: over 60% of India's crude oil imports transit the Persian Gulf, and Indian-flagged ships with thousands of seafarers were directly stranded.
Static Topic Bridges
Maritime Insurance: Concepts and the London Market
Marine insurance is one of the oldest forms of commercial insurance, dating to the Lloyd's coffee house in London (late 17th century). Today, Lloyd's of London remains a central marketplace for war risk and maritime insurance globally. War risk insurance specifically covers losses arising from acts of war, piracy, terrorism, and hostile action at sea — a separate and additional layer on top of standard hull and cargo insurance.
- War risk insurance is governed by the Institute War Clauses and the International Underwriting Association frameworks.
- Premiums for war risk zones are set dynamically based on intelligence assessments of threat levels; a zone can be designated a "Listed Area" (formerly "Joint War Committee Listed Area"), triggering automatic premium surcharges.
- The International Maritime Organization (IMO), a UN specialised agency headquartered in London, sets global maritime safety and security standards.
- The SOLAS (Safety of Life at Sea) Convention and the ISPS (International Ship and Port Facility Security) Code are key IMO instruments for maritime security.
- India is a member of the IMO Council.
Connection to this news: The war risk insurance cost spiral was a direct economic consequence of the maritime security deterioration in West Asia, functioning as a market mechanism that priced geopolitical risk into global trade costs.
Red Sea Crisis and Houthi Attacks (2023–2025)
Beginning in November 2023, Yemen's Houthi rebels (Ansarallah movement) launched sustained drone and missile attacks on commercial ships in the Red Sea and Gulf of Aden, targeting vessels they alleged were connected to Israel or Israel-supporting nations. This triggered a major diversion of global shipping away from the Suez Canal route.
- Over 190 Houthi attacks on commercial and naval vessels were recorded between November 2023 and October 2024.
- Major shipping lines (Maersk, Hapag-Lloyd, MSC, CMA CGM) suspended Red Sea transits and rerouted via the Cape of Good Hope, adding 10–14 days and $200–400 per TEU in fuel and operational costs.
- The Red Sea carries approximately 12–15% of global trade and about 30% of global container shipping volume under normal conditions.
- Asia-Europe freight rates stabilised at 25–35% above pre-crisis levels after initial spikes of 40–60%.
- War risk insurance costs for Red Sea voyages rose approximately 2,700% at their peak in early 2024.
Connection to this news: The Houthi Red Sea attacks (2023–2025) were the immediate precursor to the 2026 Hormuz crisis — both demonstrated how non-state actors and geopolitical conflicts can weaponise shipping chokepoints and drive insurance and freight cost spikes that ripple through global trade.
Chokepoints and India's Trade Vulnerability
A maritime chokepoint is a narrow strait or waterway where shipping is concentrated and can be disrupted by military action, piracy, or political decisions. India is particularly exposed to chokepoint risks given its geographic position and trade dependence on sea routes.
- India's key maritime chokepoints: Strait of Hormuz (oil imports), Strait of Malacca (trade with East Asia), Bab-el-Mandeb (Red Sea/Suez route to Europe), Cape of Good Hope (alternative).
- Over 90% of India's trade by volume is seaborne.
- The Strait of Hormuz handles approximately 20% of global petroleum liquids and 20% of global LNG trade.
- India's "SAGAR" (Security and Growth for All in the Region) policy, articulated since 2015, positions India as a net maritime security provider in the Indian Ocean Region.
- Operation Sankalp (2019) was India's earlier naval deployment to the Gulf of Oman to protect Indian-flagged vessels during Iranian-US tensions; a similar operation was launched in 2026.
Connection to this news: The war risk insurance crisis is a direct market signal of India's structural maritime trade vulnerability — the cost and risk of chokepoint dependence becomes acutely visible when geopolitical crises hit.
Key Facts & Data
- War risk insurance premiums peaked at approximately 2% of vessel value for Red Sea/Hormuz transits in 2024–26, up from ~0.3% pre-crisis — a rise of approximately 2,700%.
- For a $100 million vessel, this means a voyage insurance cost of ~$2 million vs. ~$300,000 pre-crisis.
- The Red Sea carries ~12–15% of global trade and ~30% of global container shipping under normal conditions.
- Houthi forces launched over 190 attacks on commercial shipping between November 2023 and October 2024.
- Asia-Europe freight rates were 25–35% above pre-crisis levels even after initial spikes moderated.
- Over 90% of India's trade by volume transits via sea; the Hormuz and Malacca straits are critical.