Insurance spikes, tanker collisions, and Red Sea detours reveal how regional conflict translates into real costs for a world still reeling from inflation

The sudden outbreak of the Israel-Iran war has thrown global oil markets into uncertainty by destabilizing the world's two most critical shipping chokepoints. Tehran's strategic messaging, including heightened military readiness around the Strait of Hormuz, has already impacted global trading patterns. In recent days, maritime advisories have reported a surge of electronic jamming in the Gulf, scrambling merchant ship tracking systems. Two oil tankers even collided near Hormuz on June 17, causing a fire and the evacuation of a crew, but no oil spill. The incidents highlight the razor-thin margin for error in a waterway that routinely carries 18-20million barrels of oil per day, nearly a fifth of global trade.

While Iran's actions may be aimed at deterrence, the regional risk perception is very real. Historical precedent shows that even the suggestion of closing the Strait of Hormuz can send global oil prices soaring. Shipping routes remain on edge amid ongoing airstrikes between Israel and Iran. Merchant vessels have reported navigational interference near Bandar Abbas, a strategic Iranian port. Greek authorities, whose shipping companies operate much of the world's tanker fleet, have instructed vessels to log all passages through Hormuz, underscoring the seriousness of current tensions.

A misstep, be it a stray projectile or a retaliatory move from regional actors like the Houthis, could temporarily block this vital artery, triggering immediate price surges and logistical disruptions.

Even without a full shutdown, economic consequences are mounting. War-risk insurance premiums for Gulf-bound tankers have surged. In mid-June, Very Large Crude Carrier (VLCC) freight rates from the Arabian Gulf to Asia jumped over 20%, with further hikes likely if tensions escalate.

Analysts have cautioned that any Iranian strike on Strait infrastructure or an uptick in maritime confrontation would cause premiums to spike further. One London broker estimated that an extra $3-8 per barrel may result purely from risk recalibration. These hidden costs are inevitably passed to consumers and energy-importing nations already grappling with inflation.

The Red Sea Spillover

Further south, the Red Sea and the Suez Canal remain volatile. Since late 2023, the Yemen-based Houthis have targeted commercial vessels in the Bab al-Mandab strait, complicating East-West maritime traffic. Most container lines and some oil tankers are now avoiding the Suez route, detouring via the Cape of Good Hope. This diversion adds 10-14 days to voyage times and congests African ports, straining supply chains and inflating shipping costs. Even after a temporary ceasefire brokered earlier this year, Red Sea transits remain subdued. The Suez Canal Authority reported revenues fell dramatically, from $2.4 billion to just $880 million in the span of a year. Egypt is now offering up to 15% discounts to attract shipping back, but many carriers remain wary of the enduring threat.

The insurance sector mirrors this caution. War-risk premiums for vessels transiting the Red Sea have remained high despite lulls in attacks. One report from June 17 noted that for ships destined for Israel, war-risk costs ranged from 0.7% to 1.0% of vessel value. For a $100million tanker, that's nearly $1million in added cost for a week-long voyage. These elevated costs reinforce the broader economic implications of maritime insecurity.

Energy Security Redefined in a Fragmented World

The Israel-Iran conflict has exposed pre-existing vulnerabilities and rendered them urgent. The world's energy corridors are increasingly fragile. Gulf states such as Saudi Arabia, the UAE, and Iraq have made diplomatic and operational efforts to reassure markets. Riyadh has offered extra oil cargoes to offset volatility, while Tehran, despite elevated rhetoric, has not officially disrupted its exports. Still, the potential for broader escalation looms, making disruption more plausible.

For policymakers and energy strategists, the key takeaway is that modern energy security must go beyond domestic stockpiles and price stabilization measures. Greater international coordination is essential. Regional naval operations focused on secure navigation, better real-time maritime intelligence, and deconfliction mechanisms must be prioritized. Additionally, longer-term infrastructure investments, like undersea pipelines, overland transit corridors, and expanded port capacity in lower-risk regions, should form a core part of contingency planning.

Diplomacy also plays a critical role. Confidence-building measures between key maritime states and crisis communication channels can help prevent unintended escalation. The goal should not be confrontation, but a shared commitment to keeping global trade arteries open.

The current war is a reminder that energy routes are the lifelines of the global economy. If threats to these straits continue unchecked, the world will not only face higher prices but the prospect of systemic energy instability.

In this environment, securing freedom of navigation is not a matter of ideology, but a practical, shared necessity for global economic resilience.