The War Premium on Trade: What Hormuz, the Red Sea and the Black Sea Add to Freight, Insurance and Prices

Driss EFFINA, PhD Independent Researcher, Global Strategy Files Decoded, analysis note No. 23, 24 October 2026. Reading time: about 55 minutes

Abstract

Eight months after the war involving Iran began, moving goods by sea carries a premium that did not exist in February. Hormuz saw 13 crossings on 4 October against 130 to 135 a day before the war; insurers quote 6 to 10 percent of hull value per transit, about forty times the pre-war rate; Saudi-linked ships face a Houthi blockade in the Red Sea; Black Sea tanker earnings hit their highest since 2008; and sanctions cover 1,226 tankers. This note measures what the premium costs, where it lands and how much reaches consumer prices in the United States, the United Kingdom, France, Germany and Canada. It builds five tools: a cost-build model that splits container rate increases into fuel, insurance, routing and a residual; an insurance calculator per barrel, per container and per unit of cargo value; a Suez versus Cape comparison; a calibration of freight into import prices; and a lagged pass-through model of consumer prices, run under four scenarios to the end of 2027. The central result is that the war premium is large, but it is not where the headlines put it. It sits in tankers, bulk and insurance, where long-haul crude freight now equals about a quarter of the crude price. In containers, direct war costs explain about two-fifths of the rise in Asia-Europe rates and less than a tenth of the transpacific surge, which is driven by capacity management, the Panama Canal and the timing of demand. For consumers, the effect of freight is mostly a 2027 story, and most of it is already locked in.

Keywords: shipping costs, war-risk insurance, freight rates, Strait of Hormuz, Red Sea, Black Sea, Suez Canal, Cape of Good Hope, tanker rates, container rates, import prices, inflation pass-through, sanctions

JEL codes: F14, R41, E31, G22, Q43

Key findings

1. The war premium is concentrated in tankers, bulk and insurance, not in containers. Global VLCC spot earnings reached 805,000 dollars a day on 9 October, about 27 times the 30,000 dollars a day earned on the benchmark Gulf to Far East route in early January. Crude freight from the Gulf to the Far East rose from 1.73 dollars a barrel, 2.6 percent of the January Brent price, to about 33 dollars, 26 percent of the October price; from the US Gulf to China it went from 5 to 37.5 dollars. At the mid-point of quoted rates, Hormuz war-risk cover alone costs about 6 dollars per barrel on a VLCC, 4.7 percent of the cargo’s value, against 0.11 to 0.19 dollars before the war.

2. Direct war costs explain 38 percent of the rise in Asia-Europe container rates and only 4 to 6 percent of the transpacific surge. Between 5 March and 22 October, Shanghai-Rotterdam rose by 1,580 dollars per 40-foot container (FEU), of which the author’s cost-build model attributes 474 dollars to bunker fuel and 120 dollars to insurance; Shanghai-New York rose by 7,189 dollars. The timing confirms it: the World Container Index rose 13 percent between March and early May, when Brent averaged 110 dollars, and 104 percent between May and late August, during the US-Iran memorandum, when Brent averaged 85 dollars and Hormuz premiums fell to about 2 percent.

3. Insurance is a regressive tax on cheap cargo, and the Cape detour now costs carriers about the same as Suez but costs cargo owners up to 1,364 dollars per box. The same premium is 0.13 percent of the value of a mid-value container through Bab el-Mandeb, 4.7 percent for crude on a VLCC through Hormuz and 16 percent for a grain cargo calling in the Gulf. At October bunker prices, the 8.3 extra days via the Cape add about 14 dollars per FEU to a carrier’s costs once Suez tolls and Red Sea insurance are netted out, but cost the owner of the goods 85 to 1,364 dollars per FEU in time.

4. In consumer prices, freight is a 2027 story, and most of it is already in the pipeline. On the author’s model, container freight adds 0.08 to 0.12 percentage points to annual consumer price inflation in September 2026 and peaks in mid to late 2027 at 0.55 points in the United States, 0.64 in Canada, 0.37 in Germany, 0.32 in the United Kingdom and 0.23 in France (central elasticity; the plausible range is roughly 0.4 to 1.7 times these values). Even if rates fall to 1,700 dollars by the end of 2027, 67 to 87 percent of that 2027 effect still materialises. Direct war costs account for only 0.03 points at peak in North America and about 0.1 point in Europe.

5. The probability-weighted path leaves freight above pre-war norms at the end of 2027. In four scenarios with explicit probabilities, the expected World Container Index at the end of 2027 is 3,475 dollars, 22 percent above its ten-year average, with a 20 percent chance that it is higher than today and a 40 percent chance that it is below the ten-year average. Expected Gulf-Asia crude freight is 14.2 dollars a barrel, still several times the pre-war level.

1. Introduction: what is a war premium?

Most of the 2026 debate on the economic cost of the war involving Iran has been about the price of oil, and for good reason. Brent averaged 69.1 dollars a barrel in 2025 and 70.9 dollars in February 2026; it rose to 103.1 dollars in March and 117.3 in April, fell back to 85.4 in June and 83.8 in July, then climbed again to 114.2 dollars in September and 127.0 in October. This note looks at a different bill: what it costs to move goods, energy and food across seas where ships are attacked, and how that cost reaches importers and consumers.

The war premium on trade has four components (Figure 1). The first is insurance: a ship entering an area listed by the London market’s Joint War Committee needs additional war-risk cover, priced per transit as a percentage of hull value. The second is fuel, whose price follows crude and refining margins, so the oil shock raises the cost of every voyage, near a war zone or not. The third is distance and time: Cape detours, shuttles, ship-to-ship transfers and waiting at anchor. The fourth is scarcity: when ships are trapped or diverted, owners of the remaining ones earn a rent unrelated to the cost of sailing.

Each component reaches prices through freight rates, at different speeds and with different buffers: surcharges pass through within weeks, annual contracts delay spot moves by months, margins absorb part of the shock, and credible central banks keep it from feeding on itself. The literature puts the peak effect on consumer prices about twelve months after the shock.

Sections 2 and 3 describe the corridors and freight rates; Section 4 separates war costs from the rest; Sections 5 and 6 do the insurance and rerouting arithmetic; Sections 7 to 9 follow the shock into import and consumer prices; Section 10 sets out scenarios to the end of 2027. Decoded No. 13 covered North American truck freight and tariffs; this note deals with sea freight and insurance and does not repeat that analysis.

2. Four corridors in October 2026

Table 1 summarises the state of the four corridors that matter for the five economies in this note, with a pre-war reference and the latest reading available on 24 October.

Table 1. Four corridors: pre-war reference and latest readings. Sources: UNCTAD (7 April 2026); Windward and Kpler via Insurance Business (14 October 2026); Clarksons Research via Seatrade Maritime (6 October 2026); Lloyd’s List Intelligence (12 and 15 October 2026); Alphaliner via The Loadstar (21 October 2026); Marsh via S&P Global Platts (22 July 2026); Reuters (25 September 2026); Maritime Executive (15 January 2026); Bloomberg via gCaptain (12 August 2026); ChemAnalyst (24 August 2026). Retrieved 24 October 2026.

2.1 Hormuz: from closure to an armed corridor

The Strait of Hormuz carried about one quarter of world seaborne oil trade, about a fifth of LNG trade and, according to the International Trade Centre, a third of globally traded urea. The Energy Information Administration described Iran’s actions of 2 March as an effective closure; UNCTAD counted 130 transits a day in February and 6 a day in March. A ceasefire in early April and a US-Iran memorandum of understanding signed on 17 June each produced a lull, and each lull was broken: attacks in early July, the expiry of the memorandum in August and renewed strikes from 2 September brought the corridor back into active conflict. US Central Command now enforces a blockade of Iranian ports.

Traffic has partly returned, as an armed corridor rather than a sea lane. Lloyd’s List Intelligence counted at least 477 transits by non-Iranian-linked ships in September, about 15.9 a day, and Clarksons estimates that crude flows reached about 12 million barrels a day at the end of the third quarter, against about 15 million before the war and less than 2 million at the low point. October has been worse: more than 20 vessels were attacked between 1 and 14 October, a 2,824-TEU containership sank, Windward counted 13 crossings on 4 October and Kpler put crude flows at 8.5 million barrels a day in the week to 12 October. The International Maritime Organization has recorded 106 confirmed incidents and 24 seafarer deaths since February.

The war-risk market has tracked each phase (Figure 2, panel b). Before the war, additional premiums for the Gulf were 0.15 to 0.25 percent of hull value. Within weeks they were quoted between 1 and 10 percent, with quotes valid for 12 hours instead of 24. The June memorandum brought them down to about 2 percent; by late July Marsh quoted 7.5 to 10 percent, by late August 3 to 8 percent and in mid-October 6 to 10 percent. Cover is available “for a price”, and the price reflects real losses: Howden Re estimated claims of 2 to 3 billion dollars in war and political violence lines, against annual premiums of 1.5 to 2 billion. A 40 billion dollar reinsurance facility backed by the US Development Finance Corporation had written no business as of May.

2.2 The Red Sea: a slow return, with a new Saudi risk

The Red Sea is moving in the opposite direction. After the Houthi attacks of late 2023, most container lines sent Asia-Europe services around the Cape for more than two years. In 2026 they have been coming back: the Gemini cooperation of Maersk and Hapag-Lloyd from February, MSC from August, COSCO from September. According to Alphaliner, 63 percent of deployed Far East-Europe capacity now uses the Red Sea, 70 percent on Mediterranean trades and 58 percent to North Europe.

Traffic is still below its pre-crisis level: 1,228 Suez transits in September, 21 percent more than a year earlier but 39 percent fewer than before the Houthi attacks, and 2.19 million TEU of containership volume against 5.9 million in September 2023. The risk has also changed shape. On 20 July the Houthis declared a naval blockade on Saudi Arabia. Reuters reported premiums of about 3 percent for Saudi-linked tankers loading at Yanbu, where crude piped across the kingdom bypasses Hormuz, against less than 1 percent in early July, and more than 7 percent south of Yanbu, while tankers without Saudi links paid 0.2 to 0.3 percent.

2.3 The Black Sea: tankers in the line of fire

The Black Sea is a smaller corridor for these five economies, but a revealing one. Marsh put war-risk premiums for port calls at 0.25 to 0.3 percent of hull value before attacks on tankers in late 2025; by January 2026 underwriters charged up to 1 percent, about 800,000 dollars per voyage for a newer Suezmax, and new drone strikes from early July led insurers to double premiums again, according to the International Energy Agency. Earnings on the Novorossiysk to Augusta route reached 440,948 dollars a day on 12 August, the highest in Baltic Exchange data since July 2008, and the Kazakh CPC Blend fell to 4.60 dollars a barrel below Dated Brent.

2.4 Sanctions and the Panama Canal

Two further frictions complete the picture. The first is sanctions. Western authorities had sanctioned 1,226 oil and LPG tankers by the end of August, according to S&P Global; BRS counted 148 deep-sea tankers sanctioned by the US Treasury alone, about 2.5 percent of the world fleet. These ships form a parallel fleet that cannot serve mainstream trades, which tightens the market for compliant tonnage. In August the Office of Foreign Assets Control warned that paying “tolls” or “donations” to Iranian bodies for safe passage through Hormuz, or accepting their insurance, exposes shipowners to sanctions; P&I clubs said such voyages would not be covered.

The second friction has nothing to do with war. Below-average rainfall linked to a strengthening El Niño led the Panama Canal Authority to cut daily transit capacity to 34 vessels from September, then to 32. Carriers imposed Panama surcharges on Asia-US East Coast and Gulf Coast services and cut Asia-East Coast capacity by 9 percent in August. This matters for the interpretation of container rates in Section 4: a large part of the 2026 surge on the transpacific is a canal and capacity story, not a war story.

A first look at the results

The full note goes much further, with original models, scenarios and a dashboard of leading indicators. Two of its 14 charts and diagrams are shown below.

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Frequently asked questions

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