Thursday, March 05, 2026

Money Makes The World Go ‘Round

NEWS Trump triple whammy: could rake in more than $37 billion est’ed getting the U.S. Dept of Finance to insure ships and cargo in Strait of Hormuz; keeps oil from zooming to $100, commodity trading sources say; takes business away from marine insurers like UK’s Lloyd’s of London.

War-risk premiums for ships transiting Hormuz in a crisis can rise from 0.01 % of ship value to 1–3% in high-risk times. On a $100 million vessel, 1% war-risk premium would be $1 million per transit.

If the U.S. underwrote/provided coverage for, say, 100 transits/day at $1 million: $100M/day = $36.5B/year.

This is hypothetical and would be heavy risk exposure for the government, not a straightforward profit — and it assumes carriers choose U.S. coverage instead of private.

Also if the U.S. Navy escorted convoys and charged a fee per transit, even a modest $50,000 per escorted transit × 100 ships/day → $5 million/day = $1.8 billion/year.
This gets complicated fast. First, Lloyds is not an insurance company; it’s a reinsurance company. It finds insurers to cover policies issued by other companies. Spread the risk, so to speak. It’s how insurance works. Second, this is an ad, but it’s an ad for an analysis, not an insurance company:
On March 1, 138 vessels passed through the Strait of Hormuz.

By March 2, that number was 28.

Iran didn't block them. No sovereign authority declared the Strait closed.

Seven insurance firms in London filed paperwork. That's what shut down one-fifth of the world's oil supply.

Here's how that's possible:

Between March 1 and March 2, seven of the twelve P&I clubs that collectively insure roughly 90% of the world's commercial shipping issued 72-hour cancellation notices for war risk coverage in the Persian Gulf.

When those clubs withdraw coverage, ships stop sailing.

Without P&I cover, no port will accept the vessel, no cargo owner will load it, no bank will finance the voyage, and no charterer will contract it. The ship is commercially dead.

One-fifth of the world's oil supply, shut down by spreadsheet.

Now here's why the effects reach far beyond the war itself:

Everyone from Wall Street to the White House is pricing this as a military disruption. Four to eight weeks, bombs stop, oil flows, back to normal. That model works for military blockades, but not for what actually happened here.

A military blockade ends when the military stands down. An actuarial blockade ends when the insurance market decides it has ended.

Those are two completely different timelines.

China has massive leverage over Iran. A $400 billion cooperation agreement. They buy 80% of Iran's shipped oil. If anything can pressure Tehran, it's Beijing.

But China has zero leverage over Lloyd's of London.

Even if Iran capitulates tonight and every weapon goes silent, and the IRGC stands down, not a single reinsurer reinstates Gulf war risk coverage because Beijing made a phone call.

Reinstatement requires rebuilt risk models. Voyage-by-voyage re-underwriting. Repriced treaty capacity across the entire reinsurance chain. A threat environment that actuaries can actually quantify.

None of that exists right now.

The global maritime insurance system is not a normal competitive market. It's a concentrated oligopoly layered three deep. Twelve P&I clubs at the surface. Five to ten treaty reinsurers beneath them, mostly London-based. And beneath those reinsurers, nothing.

The retrocession market and catastrophe bonds systematically exclude war risk. When a marine war risk reinsurer takes on Gulf exposure, they bear it net. No deeper pool of capital behind the curtain. A single large vessel loss in the Hormuz approaches could exceed the entire regional war risk premium pool.

So when seven clubs withdrew simultaneously, they didn't leave behind a market that could reprice. They left behind a void.

Making it worse: European insurance regulation actually made this inevitable. Solvency II requires capital reserves against modeled worst-case scenarios. When conflict escalates, modeled losses spike mechanically. Reinsurers face a binary choice: raise additional capital (takes months) or cancel coverage (takes 72 hours).

The system is architecturally designed to collapse at the worst possible moment.

And it was already fragile. Two years of Houthi attacks in the Red Sea had driven war risk premiums up twentyfold and hollowed out the capital buffer. By February 2026, the capital supporting marine war risk globally was at its thinnest point in the modern era.

Hormuz didn't hit a robust system. It hit one already bleeding out.

The closest parallel is September 2008.

The interbank lending market didn't freeze because every bank was insolvent. It froze because the cost of verifying which banks were solvent exceeded the return on the overnight loan. When verification costs exceed transaction value, the market doesn't reprice. It seizes.

In 2008, it took TARP, the Federal Reserve's lending facilities, FDIC guarantees, and 12-18 months of the largest government intervention in history to restart interbank lending.

The maritime insurance system has no TARP. No Fed equivalent. No backstop at global scale. No government has ever replaced the global reinsurance architecture from scratch during an active crisis.

The military campaign may end in weeks. The actuarial blockade will persist for months.

The country with the most to lose and the most leverage over the belligerent cannot fix the mechanism that actually closed the Strait, because the mechanism is not geopolitical. It's actuarial.

And actuaries don't take calls from the Politburo.
I don’t mean to stand on this analysis, so much as to point that this is a very complex issue. It is not a simple matter of: “Was your ship broken? Please file a claim through our app.”

I don’t think the U.S. government understands this. The U.S. government certainly can’t fix this by throwing no money at it, any more than they fixed Iraq by flying in pallets of cash; which quickly disappeared with barely a ripple.

War has consequences. Trump never prepared for them.
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1 comment:

  1. The Thought Criminal11:16 AM

    Without knowing much about this or having read about it, I have the greatest suspicion that such a thing could bankrupt the US. OK, which members of Trump's family, inner circle would get money from the scheme or are being paid-off to do this.
    Thank you John Roberts and the five monachists.

    ReplyDelete