US Deploys $20B Reinsurance to Secure Hormuz Shipping
On March 26, U.S. Treasury Secretary Scott Bessent announced that a government-backed maritime reinsurance program will soon launch to secure shipping through the Strait of Hormuz. The plan, a joint effort between the U.S. International Development Finance Corporation (DFC) and Central Command (CENTCOM), will provide up to $20 billion in insurance guarantees to restore the flow of oil and gas through the critical chokepoint.
Bessent projected confidence, stating the initiative will provide shippers with an "unprecedented" level of security. He argued that as the conflict with Iran is resolved, energy prices will fall and inflation will recede. The Treasury Secretary also claimed that tanker traffic is already starting to increase daily, even before the program is fully implemented.
Insurers: Physical Danger, Not Coverage, Halts 20% of Global Oil Flow
Despite the US government's financial initiative, key players in the insurance market argue the plan misdiagnoses the core problem. The Lloyd’s Market Association (LMA) clarified that the halt in vessel traffic is due to severe safety concerns for crews and vessels, not the unavailability of insurance. Since the conflict started, the Joint Maritime Information Center has documented 23 maritime attacks on commercial vessels in the region.
The LMA emphasized that the marine war insurance market remains open. A recent survey revealed that 88% of participants in the Lloyd's marine war market continue to have an appetite for underwriting hull war risks. According to market analysts, the primary obstacle is the physical threat of military strikes, which makes the risk to life and property too high for shipowners to bear, regardless of insurance coverage.
Plan's Efficacy Hinges on Military De-Escalation
The divergence between the government's financial solution and the market's assessment of physical risk creates significant uncertainty for energy markets. The $20 billion reinsurance program may reduce the financial sting of soaring premiums but does little to remove the actual threat of a missile strike. While the DFC initiative is intended to provide guarantees, liability coverage through P&I Clubs remains non-cancellable, suggesting a baseline of protection already exists.
Ultimately, the success of the program will depend on the credibility of U.S. naval escorts to deter attacks and provide genuinely safe passage, a factor that remains unproven. Until shipowners and their crews perceive the transit as safe, traffic through the strait—and the associated risk premium on global oil prices—is unlikely to normalize. More vessels are currently anchored outside the strait as operators assess the potential for casualties and total asset loss.
