Insight Focus
The fragile ceasefire leaves Middle East shipping under serious threat. Though disruptions remain contained, port attacks and insurance premiums—up to 60%—show rising volatility, especially near the Strait of Hormuz. Shipping companies are adapting by rerouting and managing higher costs amid ongoing uncertainty.
As we are now several weeks into the escalated Iran-Israel conflict and currently in a fragile ceasefire, we can assess the overall impact on the shipping industry so far and explore potential scenarios for the near and broader future.
It is important to note that the situation remains highly unstable. Several analysts suggest that Israel is already seeking the next opportunity to launch another devastating conflict aimed at toppling the Islamic Republic of Iran—although doing so would likely require approval from the US first.
Conflict Disrupts Ports and Supply Chains
While initial estimates and analyses were quite extreme—as is often the case during crises—the current impact of the Iran-Israel conflict on the shipping industry has been relatively limited. Although there have been significant developments affecting shippers and vessel-operating or owning companies, the overall effects remain manageable and far less severe than the outcomes of the Red Sea crisis that erupted in late 2023.
What we have mainly observed are attacks on the infrastructure in both countries, as well as in Yemen, where the Houthis—opposed to Israel since the beginning of the Israel-Palestine conflict—are based.
Recently, the Israeli military struck Houthi targets at Yemen’s Hodeidah port. Israeli Defence Minister Israel Katz stated that the army was “forcefully countering any attempt to restore the terror infrastructure previously attacked.” The Israeli military also claimed the port had been used to transfer weapons from the Iranian regime, which were then employed by the Houthis to launch terrorist attacks against the State of Israel and its allies.
Additionally, Ras Issa and Salif—two important ports in Yemen on the Red Sea—along with the larger port of Hodeidah, have also been targeted by Israel.
Furthermore, in late June, the port of Haifa—Israel’s major shipping hub—was targeted in a daytime missile attack. According to the Israel Defence Forces (IDF), as many as 23 missiles were launched from Iran.
The first port to officially halt operations after the war began was the port of Eilat, Israel’s only Red Sea port, located at the northern tip of the Gulf of Aqaba. Eilat suspended operations on July 20 due to heavy debt and unpaid taxes caused by a dramatic decline in shipping, triggered by the Yemeni-Houthi blockade of the Red Sea.
Accounting for up to 7% of Israel’s maritime trade and forming part of its southern security infrastructure, the port’s closure has been interpreted by several analysts as a win for the Houthis and a loss for Israel.
War Risk Premiums Surge in Gulf
In a mid-July report, Pole Star Global noted a sharp rise in war risk insurance costs of up to 60% amid escalating tensions in the Middle East. While not unexpected, this substantial increase reflects growing volatility in regions like the Red Sea and Persian Gulf, particularly around the Strait of Hormuz, according to the maritime intelligence firm.
Premiums in the Strait area rose from approximately 0.125% to 0.2–0.4% of a ship’s hull and machinery (H&M) value, leading to notable cost increases. Meanwhile, premiums for vessels servicing the broader Middle East Gulf have risen from 0.2–0.3% to 0.5%, adding significant daily expenses for Very Large Crude Carriers (VLCCs).
“Although the recent ceasefire between Israel and Iran has slightly eased rates, now down to the high range of 0.35–0.45%, volatility persists,” notes Pole Star Global’s report, adding that war risk ratings are shifting weekly—or even daily—in response to ongoing geopolitical changes.
Escalation Risks Grow in Strait of Hormuz
In analysing the broader Middle East situation, Saleem Khan, Chief Data & Analytics Officer at Pole Star Global, stated that while a full closure of the Strait remains unlikely, it is still a possibility if the conflict escalates. Such a development would pose severe challenges at shipping, economic, and geopolitical levels.
Khan identified three key developments that could trigger a closure of the Strait of Hormuz:
- Escalation by Proxy or Direct Attacks: If Iranian proxies target suspect merchant traffic—particularly US or Israeli-flagged vessels—or if Iran deploys asymmetric warfare (e.g., mines or anti-ship missiles), shipping disruptions could rapidly follow.
- Blockade via Military or Semi-Official Force: A deliberate closure of the Strait would constitute a major escalation, likely provoking direct naval confrontations with regional and Western powers. Such a move would have major geopolitical consequences and trigger a significant escalation. Though highly unlikely, it could alienate the Iranian regime from major trade partners and allies that rely on oil and gas from the Persian Gulf.
- Collateral Disruptions: Even without a formal blockade, increasing jamming of automatic identification system (AIS) signals near Iranian ports (already reported near Bandar Abbas) raises navigation risks. Continued attacks on oil infrastructure may force ship rerouting or trigger higher insurance surcharges.
Khan emphasised that shipping firms are already grappling with increased war-risk premiums, and even the threat of further disruption could push global freight rates higher.
Carriers Adapt to Red Sea Crisis
Meanwhile, the situation in the Red Sea remains “stably unstable.” The majority of shipping companies continue to bypass the Suez Canal and opt for the route around Africa, due to ongoing instability caused by Houthi attacks on cargo vessels. Carriers have adapted to this disruption, planning their service port rotations with the Suez blockage as a given.
This shift has had a domino effect across the port sector, significantly altering traffic flows. Some ports, like Valencia in Spain, have seen surges in volume—becoming one of Europe’s first ports of call due to the African route. Others, like the port of Piraeus in Greece, have experienced sharp declines, as the blocked Suez Canal was a critical artery for their throughput.
