Tanker traffic collapses in Strait of Hormuz, spiking insurance, fertilizer costs

Dubai: Shipping through the Strait of Hormuz has nearly halted as escalating tensions and security threats deter commercial vessels from entering one of the world’s most critical energy corridors.

The narrow waterway between the Gulf and the Arabian Sea handles roughly 20% of global oil and liquefied natural gas (LNG) shipments, making it a vital artery for global energy markets and regional trade.

Recent developments have effectively shut down tanker traffic, according to shipping intelligence reports and industry data.

“Commercial shipping through the Strait has effectively halted, with at least 150 tankers anchored in open Gulf waters as of March 2,” according to a Castor Vali intelligence report. The report added that vessels attempting to transit the waterway had received radio messages stating “no ship is allowed to pass.”

Iranian officials have also issued warnings against shipping through the strait. “The strait is closed. If anyone tries to pass, the heroes of the Revolutionary Guard and the regular navy will set those ships ablaze,” Ebrahim Jabari, senior adviser to the IRGC commander-in-chief, said in comments reported by international media.

While the strait has not been physically blocked, the collapse of maritime insurance coverage has made shipping through the corridor increasingly difficult. War-risk insurance premiums have surged sharply in recent days, raising operating costs for shipowners and discouraging vessels from entering the region.

“War risk premiums climbed from roughly 0.2% of hull value last week to as high as 1% within 48 hours,” according to insurance industry analysis by Beinsure. “On a $100 million tanker, that shift lifts a single-voyage premium from near $200,000 to about $1 million.”

At the same time, several maritime insurers have withdrawn coverage for vessels operating in or near Iranian waters. “Several leading P&I clubs and marine underwriters have announced cancellations of cover for Iranian and adjacent waters effective in early March, prompting a wave of vessels to divert, anchor or delay transits,” according to a maritime industry bulletin.

The squeeze on shipping capacity has also pushed tanker freight rates sharply higher. The estimated average spot rate for Very Large Crude Carriers (VLCCs) has reached about $350,000 per day, according to Clarksons Research, more than ten times higher than levels recorded in early January.

The slowdown in shipping through Hormuz is beginning to ripple through global supply chains beyond oil markets. The Gulf region is a major exporter of nitrogen-based fertilizers, including urea, which are critical for global agricultural production.

Supply disruptions have already pushed fertilizer prices higher. “Urea prices jumped $60–$80 per ton this week as the Strait of Hormuz closes, threatening one-third of global fertilizer trade just as spring planting begins,” according to reports from Bloomberg and Farm Progress.

Analysts say the fertilizer market could be particularly vulnerable if shipping delays persist. “The nitrogen complex, and urea in particular, would bear the brunt, given that 45% of all urea exports come from this region,” according to Rabobank analysis this week.

“The impact on the fertilizer complex could be severe.” Higher fertilizer costs could eventually translate into increased prices for agricultural commodities and staple foods if farmers face rising input costs during the planting season.

The slowdown in tanker movements has also led to congestion across regional ports and anchorages. Dozens of vessels are currently waiting outside the strait or anchored within Gulf waters while shipowners assess security conditions and insurance coverage.

Industry observers say the disruption could affect a wide range of global supply chains. Delays in tanker movements can ripple through logistics networks, particularly when shipping lanes handle large volumes of energy, chemicals and industrial inputs.

Shipping delays are also expected to increase freight costs and insurance expenses for companies moving goods through the region. These pressures are emerging alongside rising global energy prices as markets react to the disruption in oil and LNG flows.

The US has indicated it may intervene to ensure energy shipments continue moving through the strait. “If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible,” President Donald Trump said in a statement posted on social media.

“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD.” Such naval escorts have been used previously during periods of heightened tension in the region to maintain commercial shipping routes.

For now, shipping companies, insurers and energy markets remain focused on the evolving security situation in the strait. The waterway’s role as one of the world’s most important energy transit routes means any prolonged disruption could have far-reaching consequences for global trade, supply chains and commodity prices.