Iran’s reopening of the Strait of Hormuz is positive but security fears and high insurance costs continue to stifle shipping traffic, an economist warns.
STRAIT OF HORMUZ: Iran’s decision to reopen the Strait of Hormuz is welcome news but too early to celebrate, an economist says.
University of Nottingham Malaysia assistant professor of business economics Dr Tan Chee Meng warns the security situation remains fragile with elevated insurance costs.
“Shipping volumes through this critical energy chokepoint remain subdued,” Tan told Bernama. He explained this reflects the fact that the security situation is still fragile.
Many shipping firms will judge the route too risky without clearer assurances hostilities will not flare up again. The last thing operators want is to dispatch tankers only to see the strait closed again before they complete their journeys.
Iran’s Foreign Minister Abbas Araghchi declared the strait “completely open” for all commercial vessels on Friday. He linked the decision to the ceasefire in Lebanon in a statement on social media platform X.
United States President Donald Trump had announced a 10-day ceasefire between Israel and Lebanon a day earlier. Tan said a more immediate constraint on traffic is the cost and availability of insurance.
War-risk premiums and deductibles surged during the US-Israel war on Iran. This made transiting the strait significantly more expensive for shippers.
Elevated insurance costs have not fallen in line with the strait’s reopening. Tan said many shipowners are unwilling to absorb or pass on these additional costs.
This helps explain why traffic has been slow to return to the critical waterway. A rapid return to pre-war conditions is unlikely even with recent easing in crude prices.
“Key parts of Iran’s energy-producing and export infrastructure have been damaged,” Tan added. He noted repairs and reconstruction will take many months, if not longer.
Oil markets are likely to remain tight and prices relatively elevated until that capacity is restored. Supply must normalise before shipping can fully recover.
