US Defense Production Act floated to force US insurer to cover Hormuz passage, Navy escort
The bottleneck of nearly 500 vessels, including 220 oil tankers, sitting outside Hormuz is the key reason oil prices remain elevated above pre-war levels despite the MOU signing, and any credible insurance or escort solution would accelerate the return of suppressed supply to market. A fee-based naval escort scheme, if enacted, would add a new cost layer to Hormuz transits that could be partially passed through to freight rates and ultimately crude differentials. The parallel push to draw European navies into Gulf patrolling introduces a geopolitical dimension that could affect burden-sharing dynamics among allies ahead of the G7. Markets will watch whether the Defense Production Act insurance option, described as being taken more seriously than the escort fee concept, gains traction as the more structurally durable fix.
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The MOU opened Hormuz on paper; getting ships to actually move through it is proving considerably harder.
Summary:
Source: Politico
- Trump administration officials are discussing a fee-based naval escort scheme to encourage tanker owners to resume Hormuz transits, with President Trump and chief of staff Susie Wiles directing staff to find solutions
- Nearly 500 vessels including 220 oil tankers remain anchored in the Persian Gulf outside Hormuz, unwilling to transit while insurance coverage remains effectively void for the waterway
- The Defense Production Act is being considered to compel US-based insurers to offer coverage for Hormuz passage, described as an option being taken more seriously than the escort fee concept
- The US previously offered $20 billion in political risk insurance in March, but the scheme attracted few takers as owners were unwilling to risk physical assets in active conflict waters
- The fee-based escort discussions are also a negotiating tactic timed to the G7 summit in France, aimed at pressuring European allies to take on a greater share of Gulf maritime security responsibility
- Oil prices have fallen to around $75 a barrel since the MOU was signed but remain above pre-war levels, with the tanker logjam the principal obstacle to a full normalisation of supply
The Trump administration is actively working through options to restart tanker traffic through the Strait of Hormuz, including a fee-based naval escort programme and potential use of the Defense Production Act to compel US insurers to cover vessel transits, according to people familiar with the discussions.
Despite the memorandum of understanding signed between Washington and Tehran, which nominally reopens the strait to commercial shipping, close to 500 vessels including 220 oil tankers remain anchored in the Persian Gulf unwilling to move. The obstacle is insurance: Iran’s campaign of missile, drone and small boat attacks on shipping during the conflict rendered virtually every Hormuz transit a violation of standard marine insurance terms, and underwriters have not yet moved to restore coverage.
President Trump and White House chief of staff Susie Wiles have directed officials to find a workable solution, with the discussions so far centring on ways to convince the insurance industry to re-engage. One concept under discussion is a paid expedited passage programme, potentially with US naval ships accompanying tankers through the chokepoint, described by one person familiar with the talks as a VIP pass model. The White House confirmed it expects shipping flows to normalise but pushed back on the specifics, attributing anonymously sourced details to baseless speculation.
The option attracting more serious internal consideration is invoking the Defense Production Act to require US-based insurers to provide Hormuz coverage, a more direct intervention that would bypass the commercial underwriting impasse without relying on shipowners voluntarily paying escort fees.
The escort fee discussions also carry a diplomatic dimension. Former administration officials said the concept is partly designed to pressure European allies at the G7 in France to contribute naval assets to Gulf security, reducing the burden on the US and creating additional deterrence against Iran reverting to blockade tactics if the broader peace talks break down.
Oil has fallen to around $75 a barrel since the MOU was signed but remains above pre-war levels, with the tanker backlog the principal constraint on a full supply recovery.
This article was written by Eamonn Sheridan at investinglive.com.