President Donald Trump’s plan to guarantee the free flow of energy shipments through the Persian Gulf met with tepid enthusiasm, as the shipping industry warned the proposal may struggle to restore confidence after attacks effectively shut the Strait of Hormuz.
Trump said on Tuesday 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, hurting energy consumers such as India.
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.
With ships unable or unwilling to transit the strait, producers cannot export, supertanker costs are skyrocketing, and storage at many Persian Gulf refineries is filling up fast. Insurers have largely withdrawn cover for transiting Hormuz, though policies are available for ships stuck in the Gulf, as long as vessels don’t transit.
“The core thing shipowners are thinking about is the real risk of loss,” Karnan Thirupathy, partner at Kennedys Law LLP, told Bloomberg. “No one goes into the trade if the risk of loss is simply too high.”
Trump’s solution involves tapping the US International Development Finance Corporation which will in turn support charterers, shipowners and key maritime insurers.