Here’s what needs to happen before oil starts flowing through the Strait of Hormuz again

As the U.S.-Iran war nears the one-month mark, the fragile global oil market has emerged as a key leverage point for Iran — and some shipping and insurance experts don’t expect the situation to return to normal until the war winds down significantly.

Since the start of the conflict, Iran has threatened to hit ships that travel without its permission through the Strait of Hormuz, a narrow chokepoint between Iran and the Arabian Peninsula that normally carries around one-fifth of the world’s oil. More than a dozen Iranian drone and missile strikes have been reported on ships in the region.

Many shipping companies have heeded those warnings. Daily transits through the Strait of Hormuz have fallen some 90% to 95% since the conflict began, according to shipping intelligence firm Kpler, and hundreds of tankers are trapped in the Persian Gulf. 

The cost of marine insurance in the strait has also skyrocketed. Trump administration officials have discussed offering military escorts, but it’s not clear when or how that might work.

With supply largely cut off, oil prices have soared. The international Brent crude oil benchmark was trading at almost $113 per barrel as of Friday — up more than 50% from prewar levels. Gas prices in the U.S. have spiked, and some Asian countries that are especially reliant on Middle Eastern oil are fearing shortages.

With the end of the war uncertain, when will the logjam clear?

Put simply: “You need to not have fast-moving pointy bits of metal with explosives bearing down onto you at 2,000 miles an hour,” said Daniel Sternoff, an analyst at Energy Aspects and senior fellow at Columbia’s Center on Global Energy Policy.

Marine insurance cost has increased but “isn’t the gatekeeper”

With conditions in the Strait of Hormuz so perilous, the cost of insuring a tanker to make the journey through that waterway has skyrocketed in a matter of weeks.

Specialized insurance for ships looking to sail through the strait could now cost anywhere from 3.5% to 10% of the total value of the vessel, compared to 1% to 2% during the war’s first week and a fraction of a percent before the war began, according to David Smith, head of marine at London-based insurance brokerage McGill and Partners.

This type of insurance coverage, which is sold for high-risk areas, covers everything from damage to the tanker itself to the cost of dealing with an oil spill. The rate varies based on factors such as a tanker’s owner, its speed and whether it’s loaded with oil.

But shipping experts told CBS News the eyewatering cost of insurance is not the primary reason why tankers are unwilling to transit the Strait of Hormuz. Instead, ships are being held back by safety risks, and most importantly, by a desire to protect their crews from danger.

“You can be insured, but it doesn’t mean you’re not still massively concerned about losing your ship, losing your crew or causing an oil spill,” said Matt Wright, principal freight analyst at Kpler. Insurance premiums are exceptionally high, he said, but the rates that tankers can charge in the Persian Gulf “more than make up for it.” 

Smith told CBS News that war insurance has remained available through the conflict, with insurers willing to underwrite that business, even though the cost has gone up dramatically.

“Insurance isn’t the gatekeeper,” he said. “It’s still that reluctance to place [on the line] an asset and human beings who didn’t sign up for this.”

Early in the war, President Trump promised to help shippers in the Persian Gulf get political risk insurance “at a very reasonable price,” backstopped by a little-known government agency called the U.S. International Development Finance Corporation. The agency says it’s partnering with insurance giant Chubb for the effort, which could insure losses of up to $20 billion.

Smith said any U.S.-backed program to offer more financing for insurance would be a “massively positive thing,” but he cautioned that details are still sparse. He said his message to his clients has been: “Don’t count on it being in place for the next few days, or possibly weeks.”

Many shippers — and insurers — are waiting it out

Some insurers and analysts believe ship traffic and insurance rates in the Strait of Hormuz might not return to normal until there’s a ceasefire or some other clear end to the war.

“Iran gets a vote here, and Iran needs to agree to a ceasefire,” Sternoff said.

One commercial marine insurer told CBS News in a statement: “Premiums reflect risk, which means they are unlikely to reduce significantly in the conflict zone until active hostilities are suspended.”

If there’s a ceasefire, it could lead to a significant drop in insurance rates, said Smith. He predicted that a cessation of hostilities or a clear degradation of Iran’s ability to strike ships could drive premiums back down toward 1% of the value of a vessel, down from 3.5% or more. That’s still higher than prewar rates, he noted, because “hostilities could break out at any time.”

Gill Martin, insurance broker Howden’s divisional director for marine, cargo and logistics, told CBS News in an email: “For premiums to return to pre-conflict levels, the market would likely require clear, coordinated international messaging confirming that peace has been established, alongside credible guarantees around security and clarity on how these would be enforced.”

Once it becomes possible for ships to transit the strait again, the premiums charged by insurance companies may not change immediately, said Philip Smaje, the global industry specialty leader for transportation and logistics at insurance broker Aon.

“One vessel going through the strait is not going to make a sustainable difference,” he told CBS News, but if there were “numerous vessels going through the strait successfully over a period of time, then it’s conceivable insurers might modify their rating as a result.”

Military escorts could be tough if there’s still active fighting

The Trump administration has floated the idea of offering military escorts to ships that transit the Strait of Hormuz, but it’s unclear if that will materialize before the conflict ends.

Secretary of State Marco Rubio told reporters Friday that escorts won’t take place immediately but could be a “post-conflict necessity.” Mr. Trump has suggested he wants other countries that are more reliant on Middle Eastern oil than the U.S. to play a role in guarding ships. 

Energy and shipping experts believe that many tankers are unlikely to feel safe making the trip through the strait — escorts or no escorts — unless either there’s a formal end to the war, or Iran’s ability to hit ships with drones and missiles is severely degraded.

“I don’t think a naval convoy is a realistic possibility while we’re at this current level of attacks,” said Wright, principal freight analyst at Kpler. “I don’t think it would add any confidence to commercial shipping.”

The idea of escorting ships through the Strait of Hormuz is not entirely new. Almost 40 years ago, at the tail end of the Iran-Iraq War, the U.S. Navy helped escort Kuwaiti oil tankers through the strait and the Persian Gulf to protect against Iranian mines and missiles.

But “it’s not the 1980s anymore, and things are a little more sophisticated,” said Ellen Wald, an energy and geopolitical consultant and the president of Transfersal Consultant. It’s now harder to mask where ships are from or where their oil originated, she said, and the biggest threat to ships is now drones and ballistic missiles, not Iran’s naval forces. 

Unless there’s a ceasefire, Wald said she believes some shipping companies will be hesitant to transit the strait even if a military convoy is offered — especially at first.

“You’d have to have a couple ships willing to take the risk to transit and see if they can transit safely,” she said. “And once that happens, more will go. So it’s not going to be suddenly a free-for-all, and all the ships just start going … unless there’s an official agreement.”

Instead, Wright said naval escorts could be useful after there’s a ceasefire or some kind of diplomatic progress, to “give confidence on top of those agreements.”

Rubio told reporters on Friday: “I don’t care what Iran says. The first few tankers that go through the Strait after this operation is over, they’re going to want an escort from somebody or they’re not going to be able to get insurance.”

If military escorts were offered through the Strait of Hormuz, Smith said he believes it could help nudge down insurance rates, but “most people within the insurance and the shipowning community would want to see a successful escort to prove the point.”

Martin told CBS News: “If escort operations were introduced as part of a broader, credible peace arrangement, they could provide reassurance to the market and be reflected positively in pricing. However, in the context of an ongoing conflict, their impact on premiums would likely be more limited and highly dependent on perceived effectiveness.”

What happens if there’s a ceasefire?

No matter how the war ends, it will take a bit of time for shipments to ramp up again. If the war wraps up with a ceasefire by April or May of this year, Wright said he believes oil exports from the region could return to their previous levels by roughly July. 

Scores of ships are waiting to sail through the strait. Around 130 crude oil and fuel oil tankers are currently in the Persian Gulf, along with about 210 tankers that carry refined products like gasoline, according to Rohit Rathod, a senior oil market analyst at Vortexa, an analytics firm.

Those ships would not necessarily head for the exits all at once, Wright said. Instead, a smaller number of companies might send their tankers through first, essentially serving as a test of the ceasefire. Then, if the truce holds, there could be movement from a “watch-and-wait cohort” made up of more risk-averse shippers.

“It will be a slow trickle, and then it will build, and it will build,” he said, then “everybody who’s not in the first tranche will look and say, ‘Oh, how did they get on?’ And, ‘OK, let’s give it a go.'”

The next problem, though, is the fact that some Arab states have curtailed production. Oil wells can’t be turned back on immediately: It could take two or three months, Rathod said.

Oil producers would also need to feel confident enough in the ceasefire that they’re willing to end those production halts. A temporary truce is unlikely to cut it if there’s a risk of war resuming, analyst Sternoff said.

“You can’t be in a situation where you try to reopen [oil] fields, and you load them up on tankers, and then the tankers can’t flow, so you have to shut everything down again,” he said.

Another wrinkle: It’s not clear how centralized Iran’s government and military decision-making are right now, so oil shippers will need confidence that all elements of Iran’s regime will abide by a ceasefire deal, Rathod said.

“Even after an agreement is reached, it will still take a few weeks, or maybe even a month, for the situation to normalize, and before the flow normalizes as well,” he said.

It could take longer for liquified natural gas exports to return to prewar levels, however, because facilities in Qatar — the largest LNG producer in the region — have been heavily damaged by Iranian attacks. Saad al-Kaabi, CEO of state-owned QatarEnergy, told Reuters that 17% of its export capacity is offline, and it could take three to five years to make repairs.

Why are some ships still transiting the Strait of Hormuz?

Even as the conflict continues, a handful of ships are still trickling through the Strait of Hormuz. Data from Kpler shows that transits of the strait have averaged about five vessels per day in recent weeks, with some day-to-day fluctuations, according to Wright.

Some of those vessels are linked to Iran, allowing the country to keep selling oil despite the war.

A few other ships appear to be traveling through the waterway with Iran’s permission. The Iranian government said this week it will allow safe passage to vessels from a handful of “friendly” countries, including China, India and Pakistan.

Mr. Trump has seemingly welcomed those moves by Iran, telling reporters this week that Iranian officials had given the U.S. a “present” in the form of as many as 10 “big boats of oil” that were allowed to transit the strait. It’s not clear what ships the president was referring to, though he said Thursday he believes the vessels were Pakistani-flagged.

And reports have emerged that Iran is trying to set up what maritime data firm Lloyd’s List Intelligence calls a “toll booth” system. Bloomberg reported that Iran has asked for hefty fees from some ships that are looking to sail through the strait. The extent of that practice isn’t clear.

Some analysts are skeptical that Iran will allow many approved transits while the war is still ongoing, as Iran has used the strait as a pain point for the U.S. and its Gulf allies.

“Their leverage is the Strait of Hormuz,” Wright said. “If they alleviate too much pressure on that by trying to appease certain friendly nations, then they may undermine the whole goal of what they’re doing.”

When might oil prices fall?

If the war ends, a massive market sell-off could cause the price of oil futures to plummet on paper, Sternoff said. But it would still take time for the volume of oil flowing out of the Middle East to ramp back up, in part because oil producers will need to turn their wells back on.

“We’ll definitely be having effects on oil prices all the way through this year relative to prewar levels, even if we have a completely wrapped-up ceasefire tomorrow morning,” he said.

Wald told CBS News there is a “huge disconnect right now between the physical market and the financial market.” Oil supplies are far tighter than market prices reflect, and prices appear to move dramatically based on statements from the Trump administration or the Iranian regime.

“It’s like it’s being run by people in Las Vegas,” she said. “The relationship between what’s going on physically and what’s going on on people’s computer screens, there’s a massive disconnect to the point where it’s starting to look like gambling.”