Shipowners and oil traders seek details on Trump’s convoy plan

Hong Kong - Traders are awaiting further details of US President Donald Trump’s plan to guarantee the free flow of energy shipments through the Persian Gulf, as the shipping industry warned the proposal may struggle to restore confidence after attacks effectively shut the Strait of Hormuz.

The waterway, a critical choke point between Iran and Oman, carries about a fifth of globally traded crude oil and liquefied natural gas (LNG). Shipping through the strait has all but halted following Iranian strikes on commercial vessels, raising concerns over prolonged disruption to global energy supplies.

Brent climbed towards US$84 a barrel on March 5, after surging 12 per cent over the first three days of the week, 

Brent crude was little changed after jumping more than 10 per cent this week. European gas prices are up nearly 50 per cent after Qatar shut its gas fields, which account for a fifth of global LNG supply.

Mr Trump on March 3 said the US would offer insurance backstops and naval escorts for commercial vessels transiting the region, seeking to reassure markets rattled by a spiralling conflict involving Iran.

Multiple attacks on vessels in recent days have choked off traffic through the narrow waterway.

BIMCO, the world’s largest shipping industry association, said it was seeking clarification on how the US-led convoy system would operate, warning that protecting every tanker in the region would be “unrealistic”.

Officials at two major commodity trading houses said they doubted the measures would materially reduce the danger of attack, even with military escorts in place.

“Nothing is sure and we need immediate clarity,” said Mr Khalid Hashim, managing director of Precious Shipping, a Thai firm that owns bulk carriers. “Lives are at risk, cargoes are at risk, ships are at risk. We need immediate cover that protects us from all this,” he said.

The company has some ships in the Persian Gulf now, and has been struggling to secure war-risk cover before they sail from the region, he said. 

Two shipowners on March 4 said they would be open to joining escorted convoys, while two people involved in the insurance market said that escorts would help them to feel more comfortable than they are now about covering the risks.

Insurers have largely withdrawn cover for transiting the Strait of Hormuz, though policies are available for ships stuck in the Gulf, as long as vessels do not transit. 

Insurance broker Marsh said on March 4 it had met US officials to explore solutions for restoring maritime trade. Aon is reportedly also in talks with the US government on a plan to help insure tankers navigating the Strait.

“The core thing shipowners are thinking about is the real risk of loss,” said Mr Karnan Thirupathy, partner at Kennedys Law, who specialises in the commodities, shipping and insurance sectors. “No one goes into the trade if the risk of loss is simply too high.”

The knock-on effects of the halt have been swift. Iraq, the biggest Middle Eastern oil producer after Saudi Arabia, has already begun deep cuts to output and faces even deeper reductions, in the clearest sign yet of stress on suppliers in the region.

Mr Trump’s solution involves tapping the US International Development Finance Corporation (DFC) – an institution that typically supports private-sector investment in developing countries – which will in turn support charterers, shipowners and key maritime insurers.

“While President Trump’s comments about insurance and tanker escorts caused a pullback in oil prices, we question how much planning has been done on the insurance backstop thus far and think there could be a number of challenges in executing this plan quickly,” RBC Capital Markets analysts said in a note.

There is international precedent. In November 2023, a facility was set up by partners including Lloyd’s insurers and the Ukrainian government to provide affordable war risk insurance for ships underpinning Ukraine’s maritime exports, particularly grain cargoes.

And the DFC has provided some assistance with war risk reinsurance, something it could repeat.

Still, an updated US-organised version to cover oil, gas and fuels across the Persian Gulf would be on a far larger scale, and more complex, given the number of producers and consumers involved.

Several shipowners said they would also be wary of tying their fortunes to a volatile US administration.

Several also said an issue of confidence could not easily be solved with the US Navy, given Iran’s continued strikes and limited capacity for what could be tight escorts, especially as many tankers are neither US-owned nor US-flagged. 

“Providing protection for all tankers operating in areas currently threatened by Iran is unrealistic as this would require a very high number of warships and other military assets,” said Mr Jakob Larsen, chief safety and security officer at Bimco. 

Houthi attacks in the Red Sea have also continued despite intervention, shipowners pointed out.

A limited solution to get some traffic moving would also take time to put in place – something neither producers nor consumers necessarily have. BLOOMBERG