Trump has a plan to open the Strait of Hormuz. Here are the obstacles it faces.

By Claudia Assis

'Too small for the risk': The plan to have the U.S. government provide an insurance solution for ships trapped in the Persian Gulf may be impractical, analysts say

Persian Gulf countries have in some cases mere days before they run out of storage capacity and will be forced to shut down oil and gas production.

As the conflict in the Middle East enters its sixth day, the Trump administration's plan to manage the oil-tanker standstill in the strategic Strait of Hormuz is running up against key obstacles, analysts say.

The war launched by the U.S. and Israel against Iran on Saturday has disrupted traffic through the strait, trapping thousands of oil tankers and container ships and pushing shipping charter rates to new highs. As a result, the price of oil has surged, which rattled global financial markets on Thursday.

President Donald Trump vowed earlier this week to provide U.S. Navy escorts for ships and said that a relatively obscure U.S. government agency would provide political-risk insurance for the maritime trade.

That directive, however, runs up against the fact that the agency's insurance caps are "too small for the risk," analysts at J.P. Morgan said. In other words, what the agency is currently authorized to spend would not be enough to cover ships in the Persian Gulf that are damaged or destroyed while navigating the strait, leaving owners facing the prospect of serious losses.

A White House official said late Thursday that the agency and U.S. Treasury representatives have been talking with insurers and have conducted "extensive analyses on the maritime situation in the Gulf," a priority for the government.

The J.P. Morgan research report is based on "faulty assumptions about what insurance coverage is actually needed in the region, and how potential DFC insurance coverage would be structured," the official said.

Others in the shipping business, including a maritime insurer, cautioned that the plan may be all but impractical, at least in the short term. And if a workable plan is put together, it may not be in place quickly enough to avoid global energy shocks, including rising prices at U.S. gas pumps.

The agency the Trump administration wants to lean on is the U.S. International Development Finance Corp., which is the international-investment arm of the U.S. government.

See also: Trump vows Navy escorts, insurance for tankers as he predicts lower oil prices

Some of the DFC's largest projects, or those above $150,000, have included financing global vaccine procurement in poorer countries and lending to small and midsize businesses in the developing world.

The J.P. Morgan analysts estimate that each of the vessels currently inside the Persian Gulf would require oil-pollution, salvage, hull and third-party liability coverage in the event of a total loss, implying about $352 billion of maximum insurance coverage that private markets are not currently providing, they said. They estimated that 329 oil tankers are in the Gulf, in addition to hundreds of container and other types of ships.

That amount far exceeds the DFC's current investment cap, which the agency's board increased to $205 billion in February.

Persian Gulf countries have in some cases mere days before they run out of storage capacity and will be forced to shut down oil and gas production.

Norway's maritime insurer Skuld, one of a few global companies in the business, said that while the administration's plans are "encouraging," the "practicalities of implementation are far from straightforward."

"A comprehensive review of the process is required, including an analysis of coverage parameters, premium structures, criteria for determining a 'reasonable price,' and the definition of territorial limitations. Each of these aspects will undoubtedly demand considerable time and scrutiny," the insurer said.

There are also questions around the logistics of U.S. naval protection, such as which countries could be excluded from it and how any measures would interact with the "far reaching" existing international sanctions against Iran. "These ambiguities ... are only likely to intensify as the conflict evolves," Skuld said.

Treasury Secretary Scott Bessent sought to allay fears about the Strait of Hormuz on Wednesday, mentioning a forthcoming "series of announcements" by the administration to support the shipping trade.

Analysts at Wolfe Research deemed the U.S. government's maritime-insurance proposal as "legally viable" - the DFC has broad authority for loans, loan guarantees, equity investments, insurance and reinsurance. Conditions could be "finessed," they said.

Whether that will have an effect on the ground is another question.

"Will this be reassuring enough to maritime industry participants that they'll actually transit the Strait of Hormuz? That's less clear to us," the Wolfe analysts said. "At a minimum, this will take some time to have an effect, because it needs to be formally implemented - clearly no one is going to rely on a tweet."

The clock is ticking and and there isn't a lot the government could do "to manage energy price impacts if the shipping disruptions persist or if Iran starts doing more damage to regional energy infrastructure," Wolfe Research said.

Besides the talks with insurers, the administration is exploring "other interventions" that would mitigate the situation, including the potential military escorts by Navy, the official said.

"More announcements are forthcoming on this presidential priority, but the administration is confident that the DFC has the necessary resources to plug the gap," the person said.

The U.S. government estimates that around 20 million barrels a day of crude oil and petroleum products pass through the strait in times of peace, or about a fifth of the world's crude and liquified natural gas production.

The attacks on Iran launched on Saturday have sparked retribution by that country and strikes that targeted oil infrastructure sites in the Gulf. Selloffs and market jolts have ensued. New York-traded crude futures (CL00) have gained 18% so far this week, and London-traded Brent oil futures (BRN00) are up 16%.

On Thursday, Angola's state-owned oil company Sonangol reported an explosion on one of its ships anchored off the coast of Iraq. The ship is stable and operational, Sonangol said.

The U.S. Navy has escorted ships in the Gulf before, notably in the 1980s during the Iran-Iraq war, when President Ronald Reagan authorized Kuwaiti tankers to be reflagged as American ships and given a naval escort.

That deployment was code named Operation Earnest Will and at the time "stood out as the U.S. Navy's largest and most complicated surface-warfare operation since World War II, and it was a rare example of the United States using force to protect access to crude oil," according to a paper published by the Naval War College Review in 2020.

-Claudia Assis

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03-05-26 1622ET