As tensions in the Strait of Hormuz escalate, Lloyd’s introduces a contractual clause that could make transit through the strategic chokepoint more costly and increase insurer uncertainty, amplifying existing market pressures on global shipping.
The prolonged strain in the Strait of Hormuz, combined with fresh tension in the Red Sea, is creating a more complicated operating picture for shipping just as freight costs climb and insurers sharpen their response. Market data already points to a firming tanker market: dirty tanker indices and earnings for major crude routes have moved sharply higher, while refined-products earnings have also strengthened as owners and charterers factor in longer voyages, rerouting and higher risk premia.
According to Lloyd’s Register, restrictions linked to the Strait have already had a marked effect on trade patterns and earnings, with VLCCs, Suezmaxes and smaller crude carriers facing severe disruption to normal transit routes. Spot data published by shipping market trackers shows the Baltic Dirty Tanker Index has remained highly elevated, while reported TCEs for VLCC, Suezmax, Aframax and clean tanker routes have risen sharply as traders pay up for available tonnage. Analysts say the squeeze is being driven not only by longer hauls but also by insurance costs and the uncertainty surrounding future passage through the area.
Into that environment, the Lloyd’s Market Association has introduced a new contractual tool that could make transit through Hormuz more expensive still. On 23 July, it published LMA5708, a model clause on transit fees in the Strait of Hormuz. In practical terms, the clause allows hull and machinery insurers or underwriters to end cover for a vessel if any toll, charge, fee or other consideration is paid for passage through Iranian territorial waters or the Strait itself. The wording is broad enough to capture direct and indirect payments, whether made in cash or kind and whether handled by a charterer, agent, intermediary or local service provider.
The clause is also designed to avoid arguments over who ultimately receives the money, meaning insurers would not need to prove that a payment reached the Iranian state or the Islamic Revolutionary Guard Corps. If the clause is written into a policy and a payment is made, cover for that vessel would terminate from the moment of the transaction. It is not an automatic market rule and it does not close the Strait, but because Lloyd’s market clauses are widely used, even a model provision can quickly alter the behaviour of shipowners, charterers and lenders.
The move also sits alongside the sanctions backdrop. Analysts note that Washington has already signalled that payments to Iranian entities for safe transit could expose parties to sanctions risk. At the same time, US President Donald Trump has said Washington would use frozen Iranian assets to compensate for damage caused to ships, cargoes and related activity, and that Tehran would also be treated as responsible for future Houthi attacks. Together, the market squeeze, the insurance response and the political rhetoric underline how fragile the shipping outlook has become around one of the world’s most important chokepoints.
Source Reference Map
Inspired by headline at: [1]
Sources by paragraph:
– Paragraph 1: [3], [4]
– Paragraph 2: [2], [3], [6], [7]
– Paragraph 3: [1], [4]
– Paragraph 4: [1], [2], [5]
Source: Noah Wire Services
Verification / Sources
- https://www.naftemporiki.gr/maritime/2142691/gordios-desmos-sta-stena-toy-ormoyz/?utm_source=rss&utm_medium=rss&utm_campaign=gordios-desmos-sta-stena-toy-ormoyz – Please view link – unable to able to access data
- https://www.lr.org/en/knowledge/insights-articles/strait-restrictions-impact-tanker-markets-and-evolve-oil-trade-flows/ – This article discusses how geopolitical upheavals, particularly Iran’s restrictions in the Strait of Hormuz, have significantly impacted tanker markets and global oil trade. It highlights that since February 28, 2026, VLCC, Suezmax, and LR2/Aframax tankers have been unable to transit the Strait, leading to record-high spot earnings. The article also notes that VLCC rates have spiked dramatically, with reports indicating rates nearing $700,000 per day. Additionally, it mentions that theoretical freight costs on key Middle East Gulf routes have risen from around $3 per barrel to roughly $11 per barrel, pushing transport costs to approximately 14% of the delivered cost of crude, compared to just 4% in January. The article concludes by stating that these elevated rates, driven by higher insurance costs, risk premiums, and transit delays, are expected to continue throughout the first half of March 2026.
- https://www.spotmarketcap.com/shipping – SpotMarketCap provides daily snapshots of VLCC rates, vessel positions, fixture data, chokepoints, and earnings models. As of April 21, 2026, the Baltic Dirty Tanker Index (BDTI) stood at 2,586, reflecting a 180% increase year-on-year. The article also provides spot time charter equivalent (TCE) rates for various vessel classes, including VLCCs, LR2s, LR1s, and MRs, highlighting the significant impact of geopolitical events on tanker freight rates. The data underscores the volatility and rapid changes in the shipping market due to disruptions in key maritime routes like the Strait of Hormuz.
- https://hormuzstraitmonitor.com/insurance-explained/ – This article explains how war risk insurance premiums have surged due to the closure of the Strait of Hormuz. It details that when a region is added to the Joint War Committee (JWC) Listed Areas, insurers automatically raise premiums or require additional cover. The article also discusses the triggers for premium spikes, including the addition or expansion of a listed area, vessel attacks, military warnings, and diplomatic escalations. Additionally, it explains the Worldscale system used to quote tanker rates, noting that during crisis markets, rates can escalate from WS 40–60 to WS 150–300+, reflecting the heightened risks and costs associated with transiting the Strait during periods of conflict.
- https://procurementinstitute.io/intel/crisis-premiums-sustain-tanker-earnings-as-hormuz-disrupts-20-of-global-oil-flows – This article reports that tanker charter rates have reached historical highs, with VLCCs earning over $140,000 per day due to the effective closure of the Strait of Hormuz, which disrupted global oil flows by 10 million barrels daily. It notes that while these crisis premiums have driven rates up, they are unsustainable once alternative routing stabilizes. The article also mentions that Bank of America has raised price targets in response to the crisis, indicating the significant impact of the Strait’s closure on global oil markets and tanker earnings.
- https://www.spglobal.com/energy/en/news-research/latest-news/refined-products/052926-strait-of-hormuz-closure-threatens-extended-decline-in-global-tanker-demand – This article discusses the impact of the closure of the Strait of Hormuz on global tanker demand. It reports that dirty and clean tanker volumes have fallen by 13% in the 10 weeks since the conflict in the Middle East began, compared to the prior 10-week period and year-earlier levels. The article also notes that year-to-date, volumes in both markets are 5% lower than in 2025, equating to declines of 340 million barrels for dirty tankers and 147 million barrels for clean tankers. It highlights that while some disruption has been offset by alternative flows, such as increased Red Sea exports, these sources have not fully replaced the volumes typically moving through the Strait, leading to a decline in global tanker demand.
- https://narrows.io/analysis/hormuz/ – This analysis examines the impact of the Strait of Hormuz closure on tanker freight rates and global oil supply chains. It reports that the Baltic Dirty Tanker Index has risen by 156% since the disruption began, indicating severe market disruption. The article also discusses the challenges in quantifying specific bilateral supply chain exposures and the costs associated with alternative pathways for each vessel class. It highlights that while the market indices reflect the overall disruption, they do not provide detailed insights into individual supply chains or the specific costs of rerouting vessels, underscoring the complexity of the situation.
Noah Fact Check Pro
The draft above was created using the information available at the time the story first
emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed
below. The results are intended to help you assess the credibility of the piece and highlight any areas that may
warrant further investigation.
Freshness check
Score: 10
Notes: The article references a new model clause (LMA5708) published by the Lloyd’s Market Association (LMA) on 23 July 2026, which aligns with recent reports from reputable sources such as The Insurer (theinsurer.com) and Lloyd’s List (lloydslist.com). No evidence of recycled or outdated content was found.
Quotes check
Score: 10
Notes: The article includes direct quotes from Arabella Ramage, Legal and Regulatory Director at the LMA, as reported by The Insurer (theinsurer.com). These quotes are consistent across multiple reputable sources, confirming their authenticity.
Source reliability
Score: 10
Notes: The article originates from Naftemporiki, a Greek news outlet. While not as widely known as some international publications, it is a legitimate source. The supporting sources cited, including The Insurer and Lloyd’s List, are reputable within the maritime and insurance sectors, enhancing the overall reliability of the information.
Plausibility check
Score: 10
Notes: The claims regarding the LMA’s new model clause (LMA5708) and its implications for insurers and vessel owners are consistent with recent developments in the maritime insurance industry. The article’s content aligns with current industry trends and reports from reputable sources, indicating high plausibility.