War with Iran: implications for the insurance market

The geopolitical turbulence which has marked the start of 2026 reached new levels on Saturday morning when the US and Israel launched air strikes on Iran. Although the initial attack eliminated the highest echelons of the Iranian regime, including the Supreme Leader, Ayatollah Ali Hosseini Khamenei, there remains huge uncertainty over how the conflict will end and whether, as encouraged so to do, the Iranian people will seek or achieve regime change without the US or Israel putting boots on the ground. With Iran launching retaliatory strikes across the Gulf and Israel, the insurance market will be watching the situation very closely. Here, we examine the potential impact on various lines of business.

Political violence

Within hours of the initial US and Israeli attack, Iran began launching missile and drone strikes on other Gulf states, including the UAE, Qatar, Bahrain, Kuwait and Saudi Arabia, as well as Israel and Cyprus. Although the vast majority of the ballistic missiles launched by Iran have been intercepted by defensive missile systems, some have inevitably got through. Further, Iran’s Shahed ‘suicide drones' are said to be much more difficult to intercept. There have been reports of missiles and drones hitting military and civilian assets including shopping malls, hotels, ports and airports in Bahrain, Dubai, Abu Dhabi, Oman, Jordan, Qatar, Kuwait and Israel, as well as an oil refinery in Saudi Arabia and LNG facilities in Qatar (see below). Iran’s strategy appears to be to inflict as much economic damage as possible on the US’ Gulf allies with a view to trying to force the US to de-escalate. Many analysts have expressed concern that the US, Israel and the Gulf states only have a finite supply of interceptor missiles and that Iran may be holding back its most potent missiles until those defensive weapons have been depleted.

There could well therefore be a wave of political violence claims for the physical damage and destruction of privately-owned assets in the Gulf states and Israel. Many of those policies will be written by local insurers under local laws and reinsured into the London market. Questions may also arise with regard to aggregation of losses under political violence insurers’ outwards reinsurances.

Marine

Much of the Red Sea, Gulf of Aden and Persian Gulf (and their adjacent states) are already excluded areas for the purposes of marine hull insurance (which often includes primary war P&I insurance). Calls there are subject to negotiated terms and conditions. Other states bordering the Persian Gulf, Red Sea and elsewhere may be added as excluded areas. The marine liability market (impacting principally fixed premium P&I and charterers liability covers) are giving notice of cancellation for Iran/Persian Gulf and again, cover can be reinstated by agreement.

There are already reports of vessels being attacked in the Strait of Hormuz and off Oman (both shadow and non-shadow fleet), resulting in damage and sadly in loss of life. Attacks on laden tankers could result in very significant pollution. In addition to the risk of missile/drone strikes, vessels may well be at risk by closure of the Strait of Hormuz (announced by the IRGC, but it is unclear whether mines have been deployed).

A number of vessels had been detained and (some) released by the Iranian navy prior to Saturday’s US/Israeli strikes. Many of those detentions were said to be justified on alleged breaches of local maritime rules. More detentions can be expected for overtly hostile reasons and multiple vessels may be caught on the wrong side of the Strait of Hormuz. There are reports of vessels awaiting orders, prior to transiting the Strait (in both directions). If vessels are ultimately prevented from sailing out of the Persian Gulf, claims can be expected under loss of hire policies and potentially for total loss – the market default wording responds if a vessel is detained for 12 months. Of course, the viability of the Strait of Hormuz may depend on action taken by the US and the Gulf states to keep the transit open. This may herald a possible return to the tanker wars of the 1980s.

The Houthis, after a period of relative inactivity, have indicated that they will resume military operations in the Bab Al-Mandab Strait/the Red Sea, impacting at least Israeli and US vessels.

Whether or not there is regime change in Iran and even if the US/Israeli operation concludes in four weeks, the Persian Gulf, Red Sea and Gulf of Aden will likely remain highly volatile.

This will obviously impact war premiums. If vessels remain stuck for a prolonged period in the Persian Gulf, as we saw in Ukraine, insurance may become uneconomical for some Owners. Disputes can be expected between owners and charterers whether owners are obliged to comply with orders into affected areas, whether vessels are placed off-hire and contract frustration.

More generally, if vessels turn off their AIS for security reasons, this may increase the risk of collision. The intense military and other activity in the area may also result in loss of GNSS/GPS impacting vessels’ navigation systems. There have, prior to Saturday, been a number of GPS spoofing incidents resulting in the loss of navigational aids on board vessels in the region (as well as in the Baltic and Black Seas) contributing to the risk of collision and grounding.

For cargo interests, in addition to oil and LNG, it is estimated that there are 135,000 containers in transit in the region with estimated values of US$4 billion. Cargo owners and charterers will be considering alternative routes (where possible), but using other ports or diverting around the Cape of Good Hope will create additional cost, delay and congestion, further threatening the supply chain. Coverage under cargo policies is more nuanced than the cover under hull policies. Where war and strikes are written separately, consideration needs to be given to whether what is occurring is the result of war or terrorism and further complications, in the case of detained but undamaged cargo, arise on the proper interpretation of the delay exclusions.

Aviation

With the closure of airspace in Qatar, the UAE, Bahrain and Kuwait, very large airline fleets remain grounded across the Gulf. There have already been missile strikes on the airports in Dubai, Abu Dhabi, Bahrain and Kuwait. There is a significant risk of aircraft being destroyed in missile and drone strikes whilst they are stuck on the ground. Although the Aviation War market will no doubt be issuing review notices to remove cover (or reinstate cover on different terms) for the affected countries, following the decision of Mr Justice Butcher in AerCap Ireland Limited & Others v AIG & Others [2025], those aircraft may already be deemed to be in the grip of a war peril such that war insurers may still be liable for any subsequent loss of or damage to the aircraft.

Political risk and trade credit

Around 20% of the world’s supply of crude oil and LNG is transported through the Strait of Hormuz. If the Strait is and remains closed for an extended period, then it could lead to a major economic shock. Qatar is reported to have halted LNG production following attacks on its LNG facilities and Saudi Arabia has similarly paused production at Ras Tanura refinery due to a drone attack. Oil prices have already jumped by 10% to over US$80 per barrel whilst gas prices have soared by 45% as a result of the attack on Qatar. Major Asian economies such as China, India, Japan and South Korea are particularly reliant on imports of oil from the Gulf. There are concerns that a prolonged closure of the Strait of Hormuz could push oil prices beyond US$100 per barrel, reignite inflation and even lead to a global recession.

Any such global economic downturn would likely lead to a significant spike in trade credit and contract frustration claims as private obligors become insolvent and sovereign debtors, particularly importers of oil, struggle to meet their repayment obligations. Even if a global recession does not materialise, there may well still be contract frustration and trade credit claims if parties fail to honour their contractual delivery obligations due to the closure of the Strait or disruptions in oil and LNG production.

If the situation in the Gulf deteriorates further, then we may also see claims under political risk policies for forced abandonment as western companies pull their personnel out of the region and cease activities due to the conflict.