Jono Maryono
Tehran has taken a significant step towards solidifying its de facto control over the strategically vital Strait of Hormuz, announcing the formation of a new body to manage the key maritime passage. The Supreme National Security Council revealed the establishment of the Persian Gulf Strait Authority (PGSA) on Monday, an entity that will reportedly provide "real-time updates" on operations and developments within the strait. This move comes on the heels of reports suggesting Iran plans to offer insurance to vessels transiting the chokepoint, a proposal that has been met with widespread international condemnation and skepticism.
The Strait of Hormuz, a narrow waterway connecting the Persian Gulf to the Gulf of Oman, is one of the world’s most critical maritime arteries. In peacetime, it facilitates the passage of approximately 20 percent of global oil and gas consumption, making any disruption to its flow a significant threat to international energy markets and the global economy. The recent escalation of tensions, stemming from what Iranian officials describe as "US-Israeli war on Iran" beginning on February 28, has led to Iran effectively closing the strait. This closure has already resulted in considerable disruptions, marked by soaring global energy prices and significant challenges for oil tanker traffic.
Iran’s new initiative, the PGSA, is seen by many as an attempt to institutionalize and formalize its assertion of authority over the strait. The authority’s mandate to provide real-time updates suggests an intention to exert greater oversight and potentially control over maritime traffic within its claimed jurisdiction. This development is intertwined with Iran’s recent exploration of offering insurance to ships traversing the Strait of Hormuz and surrounding Gulf waters.
The Proposed Insurance Scheme: A New Frontier in Maritime Governance?
The details of Iran’s proposed insurance scheme, as reported by the semi-official Fars news agency, paint a picture of a novel approach to maritime security and commerce. According to the reports, a website named "Hormuz Safe" has begun offering maritime cargo insurance for vessels passing through the strait. The proposal reportedly includes a range of insurance products and an "encrypted verification capability" for ships. Crucially, transactions for these services are slated to be conducted using cryptocurrencies, with Bitcoin mentioned as a potential medium of exchange.
This innovative payment method raises immediate questions about transparency, regulatory compliance, and potential circumvention of international sanctions. The Iranian authorities have suggested that this initiative, along with the potential imposition of transit charges or security fees, is a means to finance necessary repairs following what they describe as "nearly six weeks of US-Israeli bombing of the country." The potential revenue projected from this scheme is substantial, with some reports suggesting it could exceed $10 billion annually for Iran. The system is designed to provide coverage from the moment of confirmation, with a signed receipt issued to the cargo owner.
Reinterpreting the Toll: Insurance as a Commercial Gambit
While Iran frames this as an insurance offering, many in the shipping industry are likely to view it as another manifestation of transit charges or tolls. The concept of charging for passage through the Strait of Hormuz is not entirely new. Reports from March indicated that Iran had begun collecting ad hoc transit fees from some commercial vessels, with payments reportedly reaching as high as $2 million per voyage. The proposed insurance system appears to be a more sophisticated repackaging of this idea, linking safe passage with financial protection.
By presenting the offering as a commercial insurance service rather than an overt toll, Tehran may be attempting to navigate the complexities of international maritime law. Under the United Nations Convention on the Law of the Sea (UNCLOS), levies cannot generally be charged on ships traversing international straits or territorial seas. This new approach, therefore, seems designed to circumvent direct violations of established international norms, though its ultimate legality and acceptance remain highly questionable.
The Challenge of Credibility: Iran’s Insurance Capacity Under Scrutiny
The viability and credibility of Iran’s proposed insurance scheme are subjects of significant debate and skepticism. Experts point to substantial financial, legal, and operational hurdles that Iran would face in implementing such a program effectively. Dr. Abdul Khalique, head of the Maritime Centre at Liverpool John Moores University, highlighted the critical need for large financial reserves and robust international reinsurance support to cover potential catastrophic losses in the marine insurance sector.
"Sanctions severely restrict Iran’s access to global financial and insurance markets," Dr. Khalique explained to Al Jazeera. "Without credible reinsurance, shipowners may doubt whether claims would actually be paid after accidents, spills, or seizures." Furthermore, he cautioned that international maritime regulators and ports could refuse to recognize Iranian-issued certificates, potentially preventing insured ships from docking or securing financing.
The use of cryptocurrency as a payment method adds another layer of complexity. Many governments associate cryptocurrency transactions with sanctions circumvention and money laundering risks. The inherent volatility, limited global regulatory oversight, and cybersecurity threats associated with cryptocurrencies could further erode confidence in the Iranian insurance program. The geopolitical tensions in the Gulf region also contribute to an environment of uncertainty that would undermine trust in such a scheme.
Compounding these challenges is the existing naval blockade implemented by the United States, which has restricted ships traveling to or from Iranian ports since April 13. It remains unclear whether the US would permit vessels that have secured insurance from Iran to transit the strait, even if Iran itself grants them passage.
Global Insurance Markets Navigate Volatility
The global maritime insurance market has already been profoundly impacted by the escalating tensions in the Strait of Hormuz. Since the onset of the conflict more than two and a half months ago, war-risk premiums for vessels operating in the Gulf have seen dramatic increases. In March, insurance costs for ships transiting the Strait of Hormuz reportedly surged as much as fivefold in the days immediately following the initial US-Israeli strikes on Iran.
Leading international insurers, including Gard, Skuld, NorthStandard, and the American Club, announced cancellations of war-risk coverage for vessels in the Gulf region shortly after the conflict began. While some insurers later re-entered the market, often with government-backed support, shipping companies have largely maintained a cautious stance. Many operators continue to avoid Gulf routes due to concerns over crew safety and the risk of attacks on vessels and their seizure.
In a significant move to restore commercial shipping through the Strait of Hormuz, insurer Chubb joined a $20 billion US-supported maritime reinsurance program. This initiative aims to provide war-risk cover for hulls, cargo, and liability, offering a degree of reassurance to shipping firms. However, the United States has also issued warnings to companies, indicating that payments made to Iran for safe passage through Hormuz could expose them to sanctions.
International Responses and Potential Repercussions
The international community’s reaction to Iran’s assertive actions in the Strait of Hormuz has been overwhelmingly negative, with no country or shipping firm publicly committing to utilizing Iran’s proposed insurance scheme. The United States and China have been particularly vocal in their opposition to any nation imposing tolls on transit through the strait. Following a meeting between US President Donald Trump and his Chinese counterpart, Xi Jinping, the White House stated that China had "made clear China’s opposition to the militarisation of the strait and any effort to charge a toll for its use." Beijing has not disputed this assertion.
United Nations Secretary-General Antonio Guterres has also called for the immediate opening of the passage, emphasizing the need for the absence of tolls and "no discrimination."
According to Dr. Khalique, any acceptance of the Iranian insurance plan is likely to be "limited and highly selective." He suggests that countries already navigating the complexities of Western sanctions, such as China and some smaller trading states, might consider Iranian insurance if it demonstrably lowers costs or guarantees passage through the Strait of Hormuz.
However, he predicts that most maritime powers and major shipping firms will likely refrain from engaging with the scheme. "Insurance depends on trust, enforceability, and internationally recognised legal standards," Dr. Khalique stated. "Most ports, banks, and shipowners rely on established insurers connected to London, Europe, or Asia. Consequently, the scheme would probably attract only niche or politically aligned participants."
Broader Implications for Global Trade and Security
The dual initiatives by Iran – the formation of the PGSA and the proposed insurance scheme – represent a concerted effort to exert greater control and influence over a waterway of immense global importance. The implications for international trade and security are far-reaching. If successful, even in a limited capacity, these measures could set a precedent for other nations seeking to leverage strategic maritime chokepoints for economic or political gain.
The move also highlights the growing trend of states exploring alternative financial mechanisms, such as cryptocurrencies, to circumvent traditional financial systems and international sanctions. This development poses a significant challenge for global regulators and law enforcement agencies tasked with maintaining financial stability and combating illicit activities.
The international community faces a critical juncture in responding to Iran’s actions. A united and clear stance, reinforcing the principles of freedom of navigation and unimpeded global commerce, will be crucial in preventing further escalation and ensuring the continued flow of vital energy resources. The effectiveness of existing international legal frameworks, such as UNCLOS, in addressing these novel challenges will also be tested. The coming weeks and months will likely reveal the extent to which Iran’s assertive posture in the Strait of Hormuz can alter the established order of global maritime governance.
