27MAY

Last P&I clubs quit Gulf; Hormuz sealed

4 min read

15:19UTC

Every major Protection & Indemnity club has cancelled war risk cover for the Gulf. After midnight Thursday, no internationally insured vessel can legally transit the Strait of Hormuz.

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Key takeaway

The P&I withdrawal constitutes a de facto international commercial embargo on Gulf energy exports — one imposed by private actuarial decisions rather than any government, and therefore not reversible by government decree alone.

Gard and NorthStandard, the two largest Protection & Indemnity clubs by insured tonnage, issued cancellation notices on Wednesday for the Persian Gulf, the strait of Hormuz, and Iranian waters. They join American Steamship Owners Mutual P&I, London P&I Club, and Skuld, which issued notices earlier in the week . Lloyd's of London separately classified Iran, The Gulf, and parts of The Gulf of Oman as high-risk zones. Every major P&I club in the global maritime insurance system has now withdrawn cover, effective midnight Thursday 5 March.

P&I insurance is the structural backbone of international shipping. It covers third-party liability — collision, pollution, crew injury, cargo loss. Without it, no port authority will grant entry, no bank will finance a voyage, no flag state will permit a vessel to sail. A tanker without P&I cover is not merely expensive to operate; it is legally inoperable under the International Convention on Civil Liability for Oil Pollution Damage.

During the Iran–Iraq tanker war between 1984 and 1988, when more than 400 commercial vessels were attacked in The Gulf, insurance markets adjusted premiums sharply but never fully withdrew. Lloyd's war risk premiums reached 7.5% of hull value at that conflict's peak. A complete withdrawal of all major P&I clubs from an entire maritime region has no precedent in the modern insurance market.

VLCC daily freight rates had already hit $423,736 — an all-time record exceeding the 1991 Gulf War peak . Hormuz traffic was down 80% from pre-conflict levels . After midnight Thursday, the remaining traffic faces a binary choice: sail uninsured — which no major shipping line or flag state will permit — or stop. President Trump's government-backed insurance through the Development Finance Corporation covers political risk but does not replace P&I liability cover; they are different products addressing different legal requirements. Reinstatement after hostilities cease requires a full syndicated risk reassessment by each club's underwriting committee — a process that historically takes weeks, not days.

Deep Analysis

In plain English

Ships need two kinds of insurance to operate commercially: one that covers the ship itself from war damage, and another (P&I) that covers liability if the ship damages something else — a port, another vessel, or the environment. The companies providing both have now all cancelled coverage for the Gulf. Without insurance, banks won't finance the cargo, and ship owners won't risk losing a vessel worth $100-200 million with no cover. The US government promised to back insurance and provide naval escorts — but the Navy itself has confirmed it doesn't currently have enough ships to run an escort programme. The result is that the promise cannot be fulfilled in time to prevent commercial shipping through the Gulf from stopping almost entirely after Thursday midnight.

Deep Analysis

Synthesis

The P&I withdrawal achieves through private market mechanics what deliberate sanctions regimes rarely accomplish: a near-total commercial embargo without a single government imposing it. This mechanism — private actuarial decisions creating collective action that states cannot easily reverse — is novel in its effectiveness and in its immunity to diplomatic resolution. No ceasefire announcement, by itself, restores cover; underwriters will require a demonstrated period of stability before reinstatement, creating a commercial lag even after any political settlement.

Root Causes

The US Navy's convoy capacity gap reflects two structural constraints: (1) post-Cold War fleet reductions have left the US with approximately 290 battle-force ships versus the 600-ship Reagan-era fleet, with carrier strike groups already committed to the theatre leaving minimal surge capacity; (2) convoy escort requires not just surface combatants but organic ASW capability, minesweeping assets, and maritime patrol aircraft — a combined-arms commitment that cannot be rapidly assembled without drawing down other global commitments. The DFC insurance pledge was announced without coordination with the Navy on operational feasibility, creating the credibility gap the Navy's statement has now exposed.

What could happen next?

3 consequence1 meaning1 risk1 precedent

Consequence
Gulf energy exports face near-complete commercial cessation after midnight Thursday absent an operational naval escort programme the US Navy has confirmed does not currently exist.
Immediate · Assessed
Consequence
South Korean and Japanese strategic petroleum reserves — approximately 50 and 90 days respectively at normal consumption — will begin drawdown within days, creating a government-level response imperative within weeks.
Short term · Assessed
Consequence
Cape of Good Hope rerouting will absorb tanker capacity and raise freight rates globally, affecting non-Gulf shipping lanes.
Short term · Assessed
Meaning
The trade finance credit freeze — banks will not issue letters of credit without P&I cover — creates a dual-barrier embargo that government insurance pledges alone cannot resolve.
Immediate · Assessed
Risk
If the US cannot operationalise the escort programme within 72 hours, the credibility of the Trump pledge collapses, potentially affecting Gulf state confidence in US security guarantees more broadly.
Short term · Assessed
Precedent
A successfully operationalised government war risk insurance framework would establish a new template for state intervention in shipping markets during conflict — potentially reshaping how future maritime crises are managed.
Long term · Suggested

Source Landscape

This story draws on neutral-leaning sources from United States and United Kingdom

United States×2

United Kingdom

The closest operational precedent is the 1984–1988 'Tanker War' phase of the Iran-Iraq conflict, when Lloyd's War Risk rates for Gulf transits reached 0.5% per voyage and commercial shipping declined sharply until Operation Earnest Will (1987) deployed US Navy convoys.

The critical structural difference: in 1987, the escort programme was operationally established before commercial paralysis became complete. The current situation is inverted — insurance withdrawal is materialising before any escort architecture exists.

Why it’s relevant now

Operation Earnest Will succeeded precisely because the commitment preceded the collapse of commercial viability. With the US Navy confirming it lacks current assets for a convoy programme, the sequencing failure makes the 1987 model unavailable as a template without a significant force-positioning interval that markets will not wait for.

Two dimensions not in the body: (1) Trade finance freeze — without P&I cover, letters of credit from major commodity trade finance banks will not be issued, creating a dual-barrier embargo that compounds the insurance withdrawal. Cargo cannot move even if a vessel is willing to sail uninsured.

(2) Rerouting economics — Cape of Good Hope routing adds 10–14 days to Europe-bound voyages and 6–8 days to Asia-bound voyages, absorbing significant tanker tonnage into longer routes and structurally tightening global available capacity independent of lost Gulf volumes. Japan holds approximately 90 days of strategic petroleum reserves at normal consumption; South Korea approximately 50 days — timelines that frame when Asian government intervention becomes politically compelled.

Maritime law specialists distinguish P&I (third-party liability) cover from war risk hull cover, but commercial operations require both: a vessel without either cannot obtain letters of credit from major trade finance banks (HSBC, Standard Chartered, Citi) needed to finance cargo. State-backed schemes — including the UK government war risk scheme and the US DFC pledge — typically cover hull loss but not third-party liability, leaving a residual gap that makes commercial operation untenable even with government backing.

Admiralty law firms (Hill Dickinson, Ince Gordon Dadds) have noted that the International Group of P&I Clubs covers approximately 90% of global ocean-going tonnage; unanimous withdrawal is structurally equivalent to a commercial blockade of the insured zone.

Sources:CNBC·Lloyd's List·Maritime Executive

Mentions:VLCC →Persian Gulf →US Development Finance Corporation →Oman →Gard →NorthStandard →American Steamship Owners Mutual P&I →London P&I Club →National Security Council (Iran) →Time →Skuld →Iran →Strait of Hormuz →Gulf of Oman →Donald Trump →

First Reported In

Update #18 · First Iranian warship sunk since 1988

CNBC· 4 Mar 2026

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Causes and effects

Caused by

Three P&I clubs pull Gulf war risk cover

Gard and NorthStandard withdrawals complete the insurance exodus begun by the three P&I clubs that cancelled earlier in the week, achieving total industry withdrawal.

Occurred 3 Mar 2026

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Hormuz down 80%; four ships in five gone

The 80% collapse in Hormuz traffic drove the remaining P&I clubs to issue cancellation notices, as continued coverage became commercially untenable.

Occurred 3 Mar 2026

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This Event

Last P&I clubs quit Gulf; Hormuz sealed

P&I insurance is the legal and financial precondition for commercial shipping — without it, vessels cannot enter ports, secure financing, or operate under any major flag state. The complete withdrawal converts a military conflict into a de facto commercial blockade of the world's most important oil chokepoint, with no precedent in the modern maritime insurance market.

Led to

KOSPI down 12%; record single-day fall

P&I insurance cancellations compounded market shock for energy-import-dependent Asian economies

Occurred 4 Mar 2026

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P&I deadline passes; Strait sealed

P&I club cancellation notices triggered the midnight Thursday deadline; its passage commercially sealed the Strait of Hormuz

Occurred 5 Mar 2026

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Different Perspectives

Trump administration

Washington defends the MATCH Act as closing a loophole that lets ASML's DUV tools reach Chinese fabs indirectly, dismissing the Dutch Cabinet's June complaint of being treated with disregard. Officials expect the bill's progress through Congress to keep the DUV cross-subsidy question live regardless of ASML's Q2 numbers.

Bruegel

Brussels-based economists argue this week's deliverables, specialist fab aid and a digital euro that restricts no US firm, prove Europe's sovereignty agenda advances only where it meets no American resistance. They expect the leading-edge fabrication gap and dependence on US frontier AI models to persist absent a policy that directly confronts a named US interest.

German federal government

Berlin welcomes the €659m tranche funding jobs across North Rhine-Westphalia, Schleswig-Holstein, Hesse and Bavaria, on top of the ESMC Dresden fab already under construction on TSMC-shipped tooling. Officials treat power and analogue capacity as the achievable near-term win while Dresden remains Germany's only bet on leading-edge logic.

House of Commons Science, Innovation and Technology Committee

The committee's 7 July report found the UK has "no coherent strategic framework" for sovereign technology and warns it "risks being cut off at whim", citing the June order that barred foreign access to Anthropic's Fable 5 and Mythos 5 as the trigger case. It expects no domestic hyperscaler or foundry response before the gap widens further.

European Commission

The Commission cleared €659m in German state aid on 14 July, taking cumulative Chips Act support to roughly €14.2bn, and let the digital-euro mandate reach trilogue after ECON's floor-vote shortcut was overturned. Brussels presents both as sovereignty delivered, without addressing that neither funds leading-edge logic fabrication.

ASML

ASML raised FY2026 guidance to €43-45bn on 15 July and, for the first time since Q1, dropped the export-control hedge from its release even with the MATCH Act live in Congress. Fouquet frames the order book, 86 systems against 67 in Q1, as strong enough to outrun the DUV dispute rather than evidence it has cooled.