The price of Brent crude oil surged past $90 a barrel on March 6th, marking a more than 12% increase, as concerns mount over a near-paralysis of oil tanker traffic in the Persian Gulf. The price jump follows escalating tensions in the region and growing fears of disruption to global oil supplies.
Several Gulf nations have begun curtailing oil production, citing an inability to export via the Strait of Hormuz, a critical chokepoint for global energy markets. The strait, just 40 kilometers wide at its narrowest point, connects the Persian Gulf with the Gulf of Oman and the Arabian Sea, and is a vital artery for oil tankers.
In a move to alleviate anxieties and encourage continued shipping through the strait, the U.S. International Development Finance Corporation (DFC) announced a $20 billion insurance program to cover maritime losses. DFC CEO Ben Black stated the program is “designed to ensure that crude oil, gasoline, liquefied natural gas (LNG), jet fuel, and fertilizer can continue to transit the Strait of Hormuz and get to the world.” The DFC will operate the program on a rotating basis, working closely with the U.S. Treasury Department and U.S. Central Command (USCENTCOM).
The situation echoes previous considerations of securing the Strait of Hormuz. Former President Donald Trump had previously indicated a willingness to provide security for commercial vessels in the Persian Gulf, including potential deployment of U.S. Navy ships for escort duties.
The Strait of Hormuz is the world’s most important oil transit chokepoint, with approximately 20% of global oil and liquefied natural gas exports passing through it, according to the U.S. Energy Information Administration. The waterway lies between Iran and Oman, with shipping lanes primarily within Omani territorial waters, but also partially within Iranian waters, governed by international maritime law and the United Nations Convention on the Law of the Sea (UNCLOS).
Analysts note the strategic importance of the strait, with one researcher at the IRIS institute describing it as a “formation accélérée de géoéconomie contemporaine” (an accelerated course in contemporary geo-economics). The region’s vast energy reserves, representing 50% of proven oil reserves and 40% of natural gas, are concentrated in a relatively tiny area, making the security of maritime routes paramount.
The recent escalation follows warnings from an advisor to the commander-in-chief of Iran’s Islamic Revolutionary Guard Corps (IRGC), who stated on Iranian state television that any attempt to traverse the strait would be met with a “severe response.” This statement came after attacks conducted by the United States and Israel against Iranian interests.
The cost of chartering supertankers to transport oil from the Middle East to China has doubled in the past week, reaching a record high of over $400,000 per day, indicating a significant increase in risk premiums for shipping companies. The DFC’s insurance program is intended to mitigate these costs and maintain the flow of oil through the strait.
