Missiles Only Create Headlines: The Hidden Risk Behind Global Oil Trade Disruptions

Many think Iran could block the Strait of Hormuz, but that’s not true. Instead, the world’s key oil route was nearly shut down when insurance companies pulled coverage. About 90% of global ships are insured by 12 maritime insurance groups, which rely heavily on reinsurance markets mostly based in London. During times of increased war risk, reinsurers might withdraw their coverage. When that happens, no ships can sail with insurance, and trade comes to a halt. Nearly all Iranian oil exports go through Hormuz. If shipping stops, Iran can’t export oil, and its war revenue dries up. Ironically, the oil weapon ends up hurting Iran first.

India imports 85% of its oil, mostly from the Middle East. If the Hormuz disruption continues, India’s advantage lies in diversification, as it sources from Gulf producers, Russia, and other suppliers. China is the country most vulnerable to Hormuz disruptions, since 40% of Chinese crude imports pass through the strait, and 90% of Iranian oil exports go to China. Even Qatar LNG shipments to China must cross Hormuz. So, if this route is cut off, China’s energy security weakens. The entire Gulf region, including Saudi Arabia, UAE, Qatar, Kuwait, and Iraq, depends on Hormuz carriers for oil exports, with over 20 million barrels passing through daily. There is no alternative route.

For centuries, London has led in maritime insurance. That means when London sees a risk as too high, global shipping stops. No blockade needed. The true gatekeepers are actuaries managing risk models in London. They don’t carry guns; instead, they set prices based on probabilities. When these numbers fail, global trade comes to a halt. Today, the world is no longer controlled solely by governments; systems such as insurance, energy, and finance now wield influence.