The disruption in the Strait of Hormuz isn't a formal closure. Instead, shippers and producers are adopting a "wait and see" approach, halting flows due to reports of damaged ships and skyrocketing insurance premiums, effectively creating a self-imposed blockade.

By attacking just a few ships, Iran creates enough perceived risk to make insurance carriers unwilling to cover vessels transiting the Strait of Hormuz. This effectively disrupts 20% of the world's oil supply without needing a large-scale military blockade, a key tactic in asymmetric economic warfare.

While the US and allies can militarily secure convoys through the Strait of Hormuz, this is not a panacea. This action would only restore a fraction of normal shipping volume (est. 20%) and will not immediately restore the trust needed from commercial shipping and insurance companies to resume full operations.

Dr. Anas Al-Hajji asserts that Iran did not militarily close the Strait of Hormuz. The disruption was caused by European insurance companies canceling policies for tankers under EU solvency rules after an attack near Sri Lanka expanded the perceived risk zone, making transit impossible for uninsured ships.

Iran doesn't need a naval blockade to close the Strait of Hormuz. The mere threat of drone and missile attacks is enough to deter shippers and insurers, creating a "de facto closure." This asymmetrical strategy highlights how psychological warfare can be as effective as direct military action in disrupting global trade.

The Middle East conflict has moved beyond risk to a physical blockade of the Strait of Hormuz. With commercial tankers no longer transiting, nearly 20% of global oil is cut off from markets. This supply disruption, not just a risk premium, is driving oil prices toward $100/barrel.

A potential off-ramp for the conflict is not military victory but a bureaucratic financial solution. By massively increasing the US Development Finance Corporation’s political risk insurance limit, the US could underwrite maritime shipping, incentivizing transit despite the military risk.

Iran effectively weaponized the Strait of Hormuz not with mines, but by creating enough uncertainty to make UK-based insurance companies pull out. This demonstrates how financial systems can be leveraged as powerful geopolitical choke points.

The conflict's primary impact on oil is not that supply is offline, but that its transport through the Strait of Hormuz is blocked. This distinction is key to understanding price scenarios, as supply exists but cannot be delivered.