Hormuz oil-tanker traffic near standstill after fresh U.S.-Iran clashes

The Analysis

Reuters reported on 9 July that two tankers had transited the Strait of Hormuz early that day, against a recent average of about 40 ships and a pre-war norm of 125 to 140. A Qatari LNG tanker remains stranded off Oman after a projectile strike. War-risk underwriters have advised pausing voyages.

Strictly speaking, no authority closed the strait. That is the first thing to establish, because most of the commentary is written as though a closure order existed somewhere and could be dated. What exists is a set of private decisions, an underwriter advising a pause, an owner declining a voyage, a charterer instructing one, and those are contract events rather than regulatory ones. The consequences run through documents signed months ago.

The question I would put to any cargo owner is not whether the strait is open. It is which document in the chain has stopped performing, on what notice, and whether the clause that governs it speaks of impossibility or only of delay.

Start with the three numbers, because they are three different measurements. Two is the count for the morning of 9 July. Forty is a recent average, and a recent average in this context already contains weeks of hostilities, so it is not a normal baseline. The 125 to 140 figure is the pre-war norm. Measured against the recent average the drop is about 95%; measured against the pre-war norm it is above 98%. Two defensible statements, two different pictures of what has been lost, and the inventory buffer you decide to hold depends on which one you treat as normal.

The applicable premise is that a strait does not close by proclamation. It closes when the premium becomes unquotable. An owner who judges a voyage unsafe may refuse, subject to the charterparty. An underwriter may decline, restrict or reprice cover, and does so on loss records rather than on communiques. A charterer may instruct, but cannot compel a master to sail into what he judges a war zone. So the binding constraint on 9 July was not a government notice. It was a commercial decision that no one has published and everyone is pricing.

That changes what you should be looking for. In a closure, the evidence is a notice with a date and a geographic description, and the legal question is whether your voyage falls inside it. In this event, the evidence is correspondence: a refusal, a restriction, an advice to pause, each of which may be privileged, unwritten, or phrased so loosely that it commits nobody. The asymmetry matters, because a party who wants to rely on force majeure needs a document, and the party who wants to defeat that claim needs only to show that the document says nothing enforceable.

War-risk clauses draw a box on a map and call it a listed area. The box is fixed at renewal. If Hormuz is already inside the box, nothing about 9 July changes whether you are covered; what changes is the additional premium and your notice obligation before entering. If the box does not include it, or if the underwriter widens the box mid-term, a voyage you believed covered may now sit outside a warranty you did not read. That is the exception that flips the conclusion, and it cuts both ways: cargo that never enters the box, a container service calling only at Mediterranean or Asian ports, has no insurance exposure here at all, and should not be repriced on this headline.

Layered by exposure, the split follows what the cargo physically is. Crude and LNG buyers on term contracts loading in the Gulf are exposed immediately, and through price rather than through paperwork, which is why they react first and read last. Project and equipment cargo bound for Gulf construction is exposed through schedule rather than price, because a vessel sitting idle against a stalled project generates a claim whose latency is measured in months and whose quantum is argued for years. Container exporters shipping into Gulf markets are affected only if their service strings transship inside the box, which is a routing fact most shippers cannot confirm without asking. An importer with neither Gulf origin nor Gulf destination is a spectator, unless its carrier re-slots tonnage to cover the disruption, which is the mechanism by which a distant importer ends up with a rolled booking and no explanation.

Transmission has four stages and only one of them is visible in the numbers. Day one is the underwriters' advice and the first refusals. Days two to five are notices under charterparties, force majeure questions and cargoes that cannot be nominated. Week one to two is freight and premium, and the movement is not symmetric, because it rises faster than it falls and the lag on the way down is where charterers lose money. Week three to six is inventory drawdown at destination and the first contract that cannot be performed on schedule. What does not move on any of those days is the legal status of the strait, which remains open in law while it is closed in practice.

Here is the part the coverage does not reach. The ship count is dramatic evidence and weak legal ground. Under most legal systems, and under most force majeure clauses drafted in the last twenty years, the test is impossibility rather than expense. A 95% fall in transits is a fact about the world, not a finding about your contract. If a longer route at a higher cost was available, a tribunal may well conclude that performance was not impossible, only dearer, and a declaration of force majeure made on 9 July would then be a wrongful one, which is a breach rather than an excuse. The gap between an operational catastrophe and a legal excuse is where these claims are won and lost, and it is the reason to read the clause on the day the news breaks rather than the day you need it.

The second thing nobody's playbook covers is the stranded LNG cargo. That is not a delay. A loaded LNG tanker sitting off a coast after a projectile strike is a cargo with a physical integrity question, a boil-off problem, a contractual destination that may no longer be willing to accept it, and a set of safety obligations that belong to the vessel rather than the shipper. Delay clauses do not address it, freight clauses do not address it, and the only instrument that might is the sale contract's quality and acceptance provisions, which were negotiated by people who were not thinking about this.

A small account, with assumptions that are mine. Take a buyer holding thirty days of cover, and assume inbound flow on its route falls to 5% of the recent average for ten days, which is close to what two ships a day against forty implies. Over those ten days it receives half a day of normal supply and burns about 9.5 days of buffer, so thirty days becomes roughly twenty. At that rate the buffer is exhausted in about thirty-one days of continued disruption, which is the date on which the buyer stops choosing between routes and starts choosing between customers. The ratios are from the transit counts; the buffer and the consumption rate are my assumptions, not the article's numbers.

Run the counterfactual in both directions. Declaring force majeure on 9 July on the strength of a ship count is the first error, because if the clause requires impossibility and a tribunal finds that a longer route existed, the declaration is itself the breach. Waiting for an official closure notice is the opposite error and the more common one, because no such notice is coming: the strait is not closed in law and may never be. The correct trigger is documentary rather than statistical, meaning a refusal, a cover restriction, a charterparty notice, an impossibility that a carrier has put in writing and dated.

The trap is assuming that because the strait is lawful to transit, the voyage is commercially available. The distance between lawful and insurable is the entire story, and it is a distance that no chart plots.

All of this holds while the interruption is produced by private decisions. If a state issues a formal closure or a naval exclusion, the analysis moves from contract to public law and force majeure becomes far easier to establish. If underwriters restrict cover without advising a pause, the exposure shifts from schedule to warranty breach, which is a different clause, a different defence, and a materially worse position for a cargo owner who never read the notice obligation. Watch which of those two happens next, because it decides which document you will be arguing about.

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— By Dr. Ingrid Voss