Economic Implications of the Iran Attacks
Shipping and energy are among the most affected sectors.
By: Antonia Colibasanu
Iranian state media and senior officials from the Islamic Revolutionary Guard Corps declared late Monday that the Strait of Hormuz was “closed” and threatened to attack any ship attempting to transit the waterway.
However, even before the closure was made official, reports had suggested the strait was shut to commercial traffic.
These reports were, strictly speaking, inaccurate.
What happened over the weekend was more procedural, though no less consequential.
As strikes took place and insurers reassessed exposure, carriers of all kinds – container lines, tanker operators, liquified natural gas shippers and bulk carriers – halted operations and waited for updated guidance.
A slowdown in vessel tracking data confirmed as much.
Ships were not so much blocked as they were waiting to see what would happen next.
Insurance played a crucial role in their decisions.
After the attacks began, the Gulf was designated an “extreme war risk” zone by Lloyd’s of London and several protection and indemnity clubs.
Underwriters withdrew cover temporarily, reclassified voyages under special war risk clauses, or imposed sharply higher premiums.
Before entering the Strait of Hormuz, shipowners had to ascertain if war risk cover remained valid – and at what price.
It was a time-consuming process.
Insurance pricing changed over the weekend, and maritime companies needed to reassess voyage economics and crew safety exposure before authorizing transit.
In practical terms, vessels approaching the strait slowed, anchored offshore or held position outside the Gulf pending clearance.
For shipping companies, the costs are high.
Covering a $100 million very large crude carrier (VLCC) for a round trip through the strait would normally cost around $250,000.
Under current “special war risk” classifications, that figure could be as high as $375,000.
Major carriers publicly acknowledged that they were reassessing the situation.
Maersk said it was “closely monitoring” and would adjust sailings based on security and insurance guidance.
Hapag-Lloyd announced temporary routing adjustments and emergency surcharges to reflect heightened risk exposure.
CMA CGM said it would review regional port calls and would implement contingency plans depending on developments.
MSC said it would evaluate things in coordination with maritime security advisers and insurers before confirming Gulf transits.
In effect, major carriers have redirected Asia-Middle East-Europe services through the Cape of Good Hope.
This diversion adds approximately 10-14 days per voyage and tens of millions of dollars in additional fuel costs.
Spot freight rates on routes such as Shanghai-UAE have already risen by about 5 percent, according to data from Xeneta.
Port backlogs are building.
Red Sea congestion linked to Houthi attacks had already forced detours; now, chokepoints around southern Africa are emerging as vessels bunch up along longer routes.
If Gulf shipping remains unsafe for, say, a few weeks, global container throughput will slow, amplifying supply chain bottlenecks.
In effect, insurance markets had managed to accomplish what weapons promise to accomplish starting Tuesday: They temporarily constrained traffic without using a physical blockade.
The Strait of Hormuz had been technically open, but commercial access remained conditional on war risk clearance and substantially higher premiums.
After the announcement on March 2 about a blockade on Hormuz, leading ship insurers from across the International Group of P&I Clubs issued notices canceling war risk coverage for Iranian waters, the Middle East Gulf, adjacent areas and the Strait of Hormuz.
That move signaled not just risk but deep and acute uncertainty, where insurers were unwilling to even price potential exposures in a rapidly escalating conflict environment.
The financial burden does not stop at shipowners.
Higher insurance premiums feed directly into freight rates, which are then passed to shippers and ultimately to consumers.
Executives across the sector expect both spot and charter costs to rise sharply as carriers avoid the Gulf or demand compensation for entering it.
The effects bleed into finance.
Multinational companies are revising credit terms.
Letters of credit now require higher margins.
Commodity traders are invoking war clauses and force majeure provisions.
Banks with Gulf exposure are reassessing risk weights.
Project finance – particularly for LNG and petrochemical facilities in the region – faces repricing or delay.
Shipping disruptions alone would constitute a major shock to global trade.
But they are only one dimension of the crisis.
The major concern, of course, is the energy market.
Oil prices have climbed sharply, even though OPEC+ has agreed to increase output by 206,000 barrels per day starting in April.
So far, there have been no confirmed direct hits on upstream production facilities in the Gulf.
Downstream operations are a different story.
State-controlled Saudi Aramco has reportedly shut down the Ras Tanura refinery, which is located on the east coast and which produced 550,000 bpd before an Iranian drone struck it.
Even if upstream production remains steady, refinery disruptions and export uncertainty tighten effective supply and reinforce bullish price expectations.
(Shrapnel from intercepted drone attacks also impacted Kuwait’s Mina al-Ahmadi refinery, although operations continued.
Offshore Israel, the giant Chevron-operated Leviathan gas field, was shut on Saturday, according to sources.)
Transport disruption compounds the pressure.
Data from Kpler shows there are at least four VLCCs that have diverted from Gulf loading zones or have halted before entering the Strait of Hormuz.
Together, they carry roughly 1.1 million metric tons (about 8 million barrels) of crude initially scheduled for early March liftings.
There are also reports about distorted GPS and Automatic Identification System spoofing that puts ship positions in the wrong locations.
This undermines confidence in satellite navigation and forces mariners to rely on fallback systems and extra caution, something that also contributes to a price risk premium.
Higher oil prices spare no market, of course, but Asia is especially affected, considering 84 percent of crude oil and condensate shipments transiting the Strait of Hormuz in 2024 were delivered there, according to the U.S. Energy Information Administration.
Some 83 percent of all LNG heads east, too.
China, India, Japan and South Korea together accounted for 69 percent of all crude and condensate flows through the strait last year.
For India, the impact is particularly acute.
Roughly 50 percent of its crude imports (about 2.6 million bpd) pass through the strait.
Some estimates suggest that for every $10 per barrel rise in crude prices, India’s annual import bill increases by $13 billion-$14 billion.
And that figure excludes additional freight and insurance surcharges.
When war risk premiums rise by up to 50 percent and freight rates adjust upward to reflect fuel burn and crew risk allowances, the landed cost of crude increases even more.
Indian refiners and policymakers are considering alternative sourcing strategies, including purchases from Russia, the U.S., West Africa and Latin America, as a way to hedge against prices and avoid the strait.
These strategies are designed to enhance energy security in the face of potential prolonged tensions.
The problem is that the discussions started months ago; they are long-term solutions to long-term problems, and they won’t do much to help India in the middle of an unexpected energy crisis.
In Japan, refiners still depend on Middle Eastern crude, which historically accounts for around 95 percent of Japan’s oil imports.
Japan maintains one of the largest emergency oil reserve stocks in the world, equivalent to roughly 254 days of consumption.
While the country has not yet discussed releasing strategic oil reserves, it is actively monitoring the crisis and assessing economic impacts.
Meanwhile, Japanese shipping companies have suspended transit through the Strait of Hormuz due to elevated risk.
China’s energy sector is likewise adjusting to heightened risk, though its immediate exposure is cushioned by large strategic reserves and existing inventories of Russian and Iranian crude.
It’s also cushioned by the fact that China’s cargo seems to sail safer waters in the Gulf.
According to Lloyd’s List Intelligence vessel tracking data, a very large crude carrier named New Vision, owned by China Merchants Group, transited the Strait of Hormuz at approximately 2:30 a.m. local time on March 1 and has since entered the Gulf of Oman.
It’s the only carrier to do so since the attacks on Iran began.
Chinese refiners have continued to receive Middle Eastern cargoes, but traders and analysts report that concerns over supply security are growing, especially since last night.
South Korean authorities have activated emergency response coordination and convened interagency teams to monitor the situation as maritime traffic slows and war risk premiums rise.
South Korea gets about 70 percent of its crude and 20 percent of its LNG from the Middle East.
Seoul’s combined public and private petroleum reserves cover roughly 208 days of consumption, and authorities have signaled they are exploring spot supply alternatives if disruptions lengthen.
The heightened emphasis on strategic energy reserves underscores how uncertain everyone is over the unimpeded flow of energy.
Governments and refiners in Asia are reviewing stockpiles and exploring alternative procurement strategies precisely because continued instability could quickly translate into supply risks and price volatility.
This collective focus on strategic reserves is a sign that markets are anticipating a sustained period of elevated risk.
LNG markets may even be worse off.
Qatar and Iran account for roughly 20 percent of global LNG supply, and Qatar supplies over 80 percent of its LNG to Asian buyers, so any sustained disruption could rattle Asian markets and spill over into Europe.
And because LNG supply chains cannot be easily rerouted around Hormuz without incurring long lead times and higher costs, there are few alternatives.
Europe’s exposure is significant.
The European Union imports roughly 30-40 percent of its oil from the Middle East, and LNG from Qatar is crucial to its gas diversification strategies.
Recent strikes on energy facilities in the region have already prompted precautionary shutdowns at Qatar’s LNG export terminals, leading to an abrupt reduction in supply and a surge in European gas futures of more than 50 percent as traders scramble to reprice risk and compete for cargoes.
European gas prices could more than double if Qatari LNG flows are materially disrupted.
Equity markets in Europe have already reflected concern.
Energy-intensive industries could face renewed cost pressure.
Natural gas is the principal feedstock for ammonia production, which underpins nitrogen fertilizers such as urea and ammonium nitrate and which accounts for roughly 70-80 percent of variable manufacturing costs in nitrogen fertilizer production.
This means there is a supply risk for fertilizer costs and output decisions.
In fact, approximately one-third of global fertilizer export volumes transit Hormuz.
Major producers in Saudi Arabia, Kuwait, Qatar and the UAE ship potash, urea and other nitrogen-based fertilizers through the Gulf to markets including India, Brazil, Southeast Asia and East Africa.
Delays in these shipments raise concerns about planting cycles and food price volatility, potentially altering subsidy schemes and reducing profit margins for farmers already pressured by inflation and supply chain volatility.
Beyond hydrocarbons and fertilizers, the current Gulf crisis is reshaping global trade geography in ways that extend well beyond energy markets.
Industrial supply chains are now facing a second layer of disruption driven by war risk insurance spikes and rerouting around the Strait of Hormuz.
Turmoil in the Middle East in 2025 prompted carriers to divert vessels away from the Suez Canal and reroute via the Cape of Good Hope, adding 10-14 days to Asia-Europe transit times and significantly increasing fuel and insurance costs.
According to the International Monetary Fund’s PortWatch data, Suez Canal traffic fell by roughly 40-50 percent year on year during peak disruption periods in early 2024.
The World Bank also documented sharp declines in Red Sea container throughput and rising global shipping costs.
With elevated war risk premiums now extending into the Gulf, east-west trade lanes are lengthening further.
This will affect supply for all manner of transited goods, including critical minerals and electronics.
The immediate effects of the Iran conflict, then, are measurable: longer delivery times, higher bunker fuel consumption, increased freight surcharges and tighter vessel availability.
But the longer-term consequences may prove structural.
In effect, the Strait of Hormuz shows how insurance markets, elevated risk perception and geopolitical escalation can impose a de facto closure on one of the world’s most critical trade arteries – even before an official blockade is announced.
The crisis is not merely about oil; it’s about the price of risk and how fast it can reshape global trade lanes, capital allocation and economic stability worldwide.
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