Both Doors Are Closed

Both of the Middle East's maritime chokepoints are closed to commercial traffic. The Strait of Hormuz and the Red Sea, at the same time, for the first time in container shipping history.

Vessel tracking data reported by Container Management shows roughly 170 containerships carrying 450,000 TEU trapped inside the Persian Gulf. More than 150 tankers are at anchor outside the strait. Fourteen LNG carriers have stopped moving, according to Kpler. Tanker traffic through the strait has dropped roughly 70 percent. DP World's Jebel Ali, the largest container port in the region, is physically open and commercially isolated. The sole sea passage connecting the Gulf to open water is under de facto blockade.

By March 5, most of those vessels will have no war risk insurance.

The insurance kill switch

Three merchant vessels were struck by missiles or drones near the strait on March 1, injuring crew members, according to gCaptain. The Joint Maritime Information Center found no strategic reason any of the three would have been targeted, suggesting indiscriminate attacks on commercial shipping. Iran does not need to hit every vessel. The insurance industry will do the rest.

Steamship Mutual, Skuld, Gard, NorthStandard, the London P&I Club, and the American Club have all issued cancellation notices for war risk cover in the Persian Gulf and adjacent waters. Most take effect around March 5. Once the cover lapses, shipowners cannot legally sail. Their lenders will not allow it. Their charterers will not accept it. The cargo stops.

Marsh estimates hull insurance premiums for Gulf transits could rise 25 to 50 percent, if anyone offers cover at all. For a $150 million container vessel, that means premiums jumping from $375,000 to $750,000 for a single transit. Skuld has indicated it is working on a buy-back option to reinstate cover. The price of those buy-backs will determine whether Gulf trade resumes in weeks or months.

Not missiles. Insurance. That is how a strait gets closed.

What happens to the paper

Vizion estimates that $4 billion in containerised cargo was in transit through the Gulf when the US-Israeli strikes began on February 28, as reported by Container Management. Roughly $877 million of that was bound for US and European markets.

Every one of those shipments has a documentary chain behind it. Bills of lading. Insurance certificates. Letters of credit with expiry dates that do not bend for geopolitics.

UCP 600 Article 36 is about to matter in ways most practitioners have not thought about since COVID. The provision states that a bank "assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars." If an issuing bank's operations are disrupted and a letter of credit expires during the disruption, the beneficiary loses the right to draw.

The beneficiary bears the risk. Not the bank. Not the applicant. The exporter that shipped the goods and is waiting for payment.

Watson Farley & Williams analysed Hormuz disruption scenarios in mid-2025, before any of this materialised. Their warning was specific: invoking force majeure incorrectly risks the counterparty arguing the entire contract has been repudiated. Declare force majeure when you should not have, and you are the one in breach.

Two chokepoints, zero alternatives

The Red Sea had been effectively closed to most container traffic since late 2023, when Houthi attacks forced carriers around the Cape of Good Hope. A ceasefire deal in 2025 allowed CMA CGM, Maersk, and others to begin cautious returns through the Suez Canal.

That is over. Houthi forces have resumed Red Sea attacks in solidarity with Iran, as reported by Lloyd's List. Peter Sand, Xeneta's chief analyst, told Lloyd's List the strikes had "shattered any prospects of a large-scale return of container shipping to the Red Sea in 2026."

Both doors closed. Every vessel moving cargo between Asia and the Gulf, or Asia and Europe, or the Gulf and anywhere else, now routes around the southern tip of Africa. Add 10 to 14 days to every voyage.

Spot rates from China to the UAE had already risen 5 percent in the ten days before the strikes, reaching $1,572 per FEU, according to Xeneta. Hapag-Lloyd has imposed a War Risk Surcharge of $1,500 per TEU for Gulf cargo. CMA CGM's Emergency Conflict Surcharge, effective March 2, runs from $2,000 to $4,000 per container. Those costs land directly on the LC.

Brent crude jumped roughly 10 percent in initial trading to nearly $80 a barrel, according to Bloomberg. The U.S. Energy Information Administration estimates about 20 percent of global petroleum consumption and a similar share of global LNG trade transits the Strait of Hormuz. Citi analysts project Brent between $80 and $90 in the coming days, with some forecasts warning of $100 per barrel if disruptions persist.

What I am watching

LC expiry dates. Every documentary credit with a Gulf port of shipment and an expiry window in the next 30 to 60 days is at risk. If the beneficiary cannot ship, cannot get documents signed, or cannot present because the advising bank is operating under disruption, Article 36 gives the issuing bank a shield. Beneficiaries need to be contacting their banks now to request extensions or amendments. Not next week. Now.

Insurance reinstatement terms. The price of war risk buy-backs will set the economics of Gulf shipping for the rest of the year. If premiums come back at 50 percent above pre-crisis levels, the cost structure of Gulf container trade changes permanently. Every LC that prices in freight and insurance will need to be renegotiated.

The Jebel Ali question. Dubai built itself into the Middle East's trade hub. Jebel Ali handled 15.5 million TEU last year, according to DP World. Every free zone company, every re-export business, every trade finance operation in the Emirates runs through that port. It is open and cut off. How long before businesses start diversifying to Salalah, to Mundra, to anywhere with a sea lane that does not run through a war zone?

The geopolitics will dominate the headlines. The military analysis will fill the cable news cycles. But in trade finance, the crisis is not approaching. It is here. It arrived the moment the first P&I club pressed send on its cancellation notice.

-- Tamara