Background

The Strait of Hormuz is a major maritime choke point for world energy trade. Its blockage on 28 February 2026 following US and Israeli strikes on Iran has had dire consequences for the shipping industry.

The insurance market quickly responded to the conflict with the world's largest maritime insurance mutuals withdrawing war risk insurance cover for ships entering the Persian Gulf. The withdrawals were seen as likely to discourage ship owners from entering the Persian Gulf in the short term.

Circa. a fifth of the world's supply of crude oil passes through the Strait of Hormuz (which is the only exit route for the Persian Gulf).

Countries bordering the Persian Gulf produce around 40% of global oil output. 

The scale of the premium increases for war risk cover as an addition to policy terms was anticipated to be significant, with limited reinsurance available.

If underwriters judge the risk to be effectively unquantifiable, some will simply refuse to quote, reducing capacity. Ships with business connections to the US or Israel could be unable to obtain coverage at any price, effectively barring them from the region with obvious knock-on effects for global oil supply chains.

Loss of Hire Insurance

A loss of hire insurance policy (or 'loss of earnings' insurance), is a specialist marine insurance product that compensates the insured - typically a shipowner - for the loss of income it suffers when the Vessel becomes unavailable for use, following an insured event.

Marine vessels trapped in the Gulf, are rendered unable to generate hire and Owners may look to their loss of hire insurers for compensation and potentially even seek to render the Vessel a Constructive Total Loss (CTL), if she is immobilised for over 12 months (depending on the policy terms).

Vessels which decide to avoid the Gulf and reroute the significant, additional distance around the Cape of Good Hope would be subject to significant voyage time and associated travel costs. From a loss of hire perspective, rerouted voyages could generate off-hire claims in more complex charterparty arrangements.

Additional time at sea would increase the risk of mechanical breakdown and consequential off-hire claims.

For cargo owners, the extended voyage times may give rise to delay claims. 

Other potential claims and related issues

Disputes may also arise between Owners and Charterers on whether:

• Owners are obliged to comply with orders into affected areas;
• Whether the Vessel is placed off-hire; and
• Whether Charterparties have been frustrated. 

Further issues could arise as support Vessels are also being targeted, as evidenced by the incidents with the Mussafah 2, salvage tug and Safeen Prestige, containership on 6 March 2026.

The UAE flagged Mussafah 2 was dispatched to provide salvage tow to the disabled and abandoned, Safeen Prestige, after she had been hit by a missile. The tug whilst alongside the containership was herself hit by two IRGC incoming missiles, causing a major explosion and onboard fire before she sank. Sadly, crew members died in the attack.

Targeting has thus become increasingly indiscriminate. While there remains an obligation to assist those in distress under the SOLAS Convention, insurers, including Gard, have recommend this is balanced against the safety of the responding Vessel, the Mussafah 2 in the subject case and consideration for the lives of its own crew.

Contractual Implications and Legal Considerations

Parties under English law are largely free to contract on such terms as they agree; the concept of freedom of contract.

Consequently, whether a party can exercise an option to terminate a Charterparty, or provide an alternative performance and what consequent rights and obligations may arise will be dictated by the terms of the written contract (to be construed by the English courts by contractual interpretation) and applying the particular facts of the case to the scenario in question.

Prevalent war risk clauses, such as CONWARTIME and VOYWAR (incrementally amended in 2025), are commonly included in Charterparties to provide for alternative methods of performance in the event of war, or upon the occurrence of events akin to war and hostilities which do not render the continued performance of the Charterparty impossible.

In CONWARTIME 2025, war risks are stated to include any actual, threatened or reported act of war, warlike operations, laying of mines, capture, seizure, acts of hostility, malicious damage and/or blockades (whether imposed against all Vessels or imposed selectively against Vessels of certain flags or ownership, or against certain cargoes or crews or otherwise), amongst other perils.

Such clauses provide Owners with the right to refuse to proceed with a particular voyage (and have liberty to leave an area) where it appears the Vessel, her crew (or other persons onboard the Vessel) or cargo, in the reasonable judgment of the Master or her Owners, may be exposed to war risks, whether such risk existed at the time of entering into this Charterparty or occurred thereafter.  

Generally speaking, if a Vessel is being ordered to proceed to a war risk area, the war risks clause may provide that the Owner has the right to refuse the order if it is reasonable to do so. This will involve some form of assessment of the likelihood of the Vessel’s exposure to such risks. Such risk assessment will likely involve enquiries to assess the degree of exposure (including independent voyage risk assessments, liaising with flag state representatives and P&I clubs etc).

As regards case law on the point, in the context of voyage charterparties, the Supreme Court recently held in The Polar [2024] 1 Lloyd’s Rep. 85 that an Owner cannot refuse orders to transit an area where the Owner has, under the terms of the Charterparty, accepted the risk of transit, unless the Owner can demonstrate a “material change in risk”. This was the benefit Charterers were paying for in agreeing to pay the premium (paras 62 and 65-68 of the judgment).

In the subject case, Charterers had paid an additional war risk premium to enable the Vessel to transit the Gulf of Aden (which covered Kidnap & Ransom / K & R insurance) and which became relevant when the Vessel was seized by Somali pirates and released after ten months, following payment of a ransom of USD 7,700,000 by Owners.

For Charterparties entered into before 28 February 2026 (the date the conflict began), it is clear that a material change has occurred for the purposes of The Polar. However, as the situation in the region evolves daily, whether that change continues to be “material” becomes less obvious.

The answer will depend on the specific wording of the clause and the surrounding circumstances. In particular, the Vessel’s flag, as well as any connections between the Owner or the cargo and the US or Israel (or potentially other states in the region that have been targeted by Iran), may materially affect the risks involved in these voyages, and therefore the reasonableness of the Owner’s judgment.

The English courts have provided some guidance on how Owners are required to exercise their “reasonable judgment” under wars risk provisions.

In The Triton Lark [2012] 1 Lloyd’s Rep. 151, the High Court held that, when an Owner is required to make a reasonable judgment of the war risks, there must be a “real likelihood” that the Vessel would be exposed to the danger in question, rather than a “serious risk”, as the Tribunal comprising three arbitrators found (and against which leave to appeal was granted). The determination should be based on evidence, rather than speculation.

In practice, guidance from war risks insurers, flag states, risk intelligence agencies, and others, will be highly relevant to support Owner’s decision/s.

Charterer’s obligations regarding the safety of the port are related primarily to the moment the order is given. The port must be prospectively safe – it should be safe when she actually arrives there. If the port becomes unsafe thereafter due to a supervening event, the Charterer may come under a further obligation to nominate another port.

If Charterers continue to insist on their order for a Vessel to proceed to an “unsafe port”, they risk being in repudiatory breach of contract, which potentially the Owners could accept and bring the Charterparty to an end and/or claim damages.

The threatened or actual closure of the Strait also raises several other legal issues, including whether the Charterparty or other relevant contract would be frustrated, whether there are force majeure provisions that would be applicable in this situation and also the implications for insurance cover of the Vessel and her Cargo.

Joint War Committee (JWC) Information

At the time of writing, the Strait of Hormuz remains a designated high-risk area by the Joint War Committee (JWC).

Vessels’ standard insurance may be insufficient and additional premiums required to cover the increased risk associated with navigating through the Strait.

The JWC comprises senior underwriters from across the market to discuss and debate on key issues affecting the marine insurance market.

Soon after the Gulf conflict began, the JWC extended the Listed War Risk Areas by adding those countries in the Gulf region that had US bases, as they are now considered as targets by Iran. Despite some initial incorrect reporting about cancellations, the JWC has stated that hull war insurance cover remains in place and available in the London market, through both Lloyd’s syndicates and IUA companies.

The JWC has stated (as of 29 May 2026) it is an evolving situation and remains highly unpredictable. There have been more than 45 attacks on commercial tonnage. Many ships remain at anchor whilst Masters wait for clarity on the alleviation of physical dangers to their Vessel and crew.

The JWC has made it clear that “toll” payments to Iran for safe passage through the Strait of Hormuz are not authorized and will create significant sanctions exposure for those involved.

Whilst Owners must obtain the appropriate cover, liability for paying for the extra cover depends on the provisions of the relevant Charterparty which should be carefully considered – who pays the premium could also have implications on parties’ rights and obligations when entering the War Zone, as evidence in The Polar.

Owners and/or Charterers may enquire what will occur if a Vessel transits the Strait and is hit by a missile.

This has become common.

Owners are likely to make a claim under their war risk insurance (which they would have secured prior to entering the conflict zone).

In the relatively recent judgment in The Polar [2024] 1 Lloyd’s Rep. 85, the UK Supreme Court clarified that even where Charterers have paid the additional premium for the war risk insurance as required by the Charterparty, this will not necessarily protect them from claims brought against them by subrogated insurers. For such an “insurance code” or “insurance fund” to be considered a complete code, such that it prevented claims against the Charterers, it would require clear and express provisions in the Charterparty.

Where Charterers are named as co-assured under an Owner’s policy, the position may be different, though should Charterers wish to transit through the Strait, they should consider whether it would be prudent to purchase their own policy before transiting.

Summary

The situation in and around the Strait of Hormuz remains volatile and is having profound implications for global trade and insurance.

As the conflict continues, with no sign of ceasing anytime soon as confirmed by many in the maritime industry (at the time of writing), stakeholders must weigh the risks of continued operations, against the costs of rerouting and insuring shipments.

Owners and Charterers should carefully consider their Charterparty terms (and/or any relevant B/Ls) to ensure all parties obligations for trading in the region are suitably addressed, pursuant to their agreement and commercial understanding.

It would be prudent to have continuous engagement with insurers to ensure that there will be adequate cover to respond to any incident – to include any missile strike and/or loss of hire claim/s - if the Vessel passes through the Strait of Hormuz.

LARA HICKS

BARRISTER

33 BEDFORD ROW

25.09.26

Should any legal advice and/or assistance be required on any issues raised and/or related to this article, the reader/s should contact Counsel’s clerks.