Hormuz In Crisis: What The US-Iran Conflict Means For Insurers, Reinsurers And Insureds In India

In the early hours of 28 February 2026, the world's most critical oil chokepoint effectively closed. The United States and Israel launched coordinated airstrikes on Iran codenamed "Operation Epic Fury" and "Operation Roaring Lion", respectively; targeting military installations, nuclear sites and government leadership. Iran's response was swift and deliberate: its Islamic Revolutionary Guard Corps ("IRGC") moved to close the Strait of Hormuz ("Strait"), the narrow waterway through which 25% of the world's seaborne oil trade and 20% of the world's liquified natural gas ordinarily passes, for all vessels linked to the US, Israel and their allies. The International Energy Agency has since described the resulting disruption as the largest to the global oil market in its history. Brent crude hit its peak at USD 126 per barrel in March 2026 and is presently at approximately USD 80, and over 2,000 ships and 20,000 mariners remain stranded in the Persian Gulf.

The situation continues to remain deeply contested. A conditional ceasefire was announced on 7 April 2026 but remained highly fragile. Iran began to control traffic and charge tolls of over USD 1 million per ship, prompting the US Navy itself to begin blocking Iranian ports from 13 April 2026 leading to a "dual blockade" for the Iranian vessels and to facilitate the movement of commercial vessels that had been held "hostage" under the code name "Project Freedom". Iran briefly declared the Strait open on 17 April 2026, before the IRGC reversed course the following day. Only in the past few days, the United States, Isreal and Iran have exchanged strikes across the Middle East. In parallel, reports emerging from the United States and Pakistan indicate that a memorandum to end the conflict and reopen the Strait has been finalised and is due to be executed in the few following days in Switzerland, with more negotiations to follow in the next 60 days. The United States has even announced the lifting of its blockade of the Strait. Whether this announcement will finally bring a closure to the largest disruption to the global oil market and global trade remains to be seen.

For the Indian insurance and reinsurance market, this is not merely a geopolitical standoff. India imports approximately 85% of its crude oil, with a significant share of that moving through the Strait. The question of who bears the loss, and under what policy, what clause, and what regulatory framework, is one that Indian insurers, reinsurers and insureds are grappling with right now. This article aims to address these questions for each of the three parties to the insurance relationship, draws on the early experience of the London market, and explores a framework for what each party can do in order to better prepare themselves for the uncertain times ahead.

I. The Coverage Question: Who Bears the Loss

For the Insurer

The first question an Indian general insurer¹ will be asking is whether it actually has to pay. The answer depends on a legal distinction that has been argued in courts around the world for years, and which this conflict has brought back into sharp focus. Standard marine cargo and hull policy contain a War Risk Exclusion - a clause that excludes cover for losses caused by war or acts of a government. The central question for Indian insurers is whether the IRGC's blockade of the Strait and its attacks on merchant vessels constitute "war" under the policy, or whether they amount to "Restraint of Princes"², a separate concept under the Marine Insurance Act, 1963 ("MI Act"), that covers losses caused by political or executive acts (including a government-ordered blockade).

If it is war, the standard policy does not respond. If it is Restraint of Princes, it may³. This distinction is crucial. Indian courts have consistently held that the burden of proving an exclusion rests with the insurer, and that exclusion clauses must be construed narrowly. An insurer cannot simply stamp "war" on a file and walk away from liability, it must produce evidence to sufficiently prove it⁴.

There is a second, more immediate pressure on insurers of accumulation risk. India routes large volumes of energy cargo through the Strait (crude oil, LNG, fertilisers, chemicals), and many of these shipments are covered under Indian policies. A single closure event can trigger multiple claims and polities at once, creating a pile-on effect that strains insurers' balance sheets and claims handling capacity. The vessels currently stuck at anchorage outside the Strait generate three types of claims under the MI Act. First, there is General Average ("GA"), where a sacrifice is made to save the voyage and each cargo owner is required to proportionately contribute to the resulting loss⁵. Second, there is Constructive Total Loss ("CTL"), where a vessel is effectively written off because recovery would cost more than what the vessel is worth and its insured value⁶. Third, there are Sue and Labour costs, which are the reasonable and documented steps an insured takes to prevent or reduce a loss, which the insurer must reimburse, but only where those steps relate to a covered peril (in a contested closure where the underlying peril is itself disputed, the Sue and Labour coverage is equally contested).⁷

For the Reinsurer

Insurers do not bear the risks alone - behind every insurer sits a reinsurer. In India, the framework of this relationship is governed by a mandatory offering that is strained by the current crisis. The IRDAI's Reinsurance Regulations require that insurers first offer their reinsurance business to the General Insurance Corporation of India ("GIC Re")⁸ (India's leading domestic reinsurer) before going to foreign reinsurers or Cross-Border Reinsurers⁹ ("CBRs") who are foreign reinsurers with no Indian office. This is called Order of Preference¹⁰. The problem is that this Order of Preference is faced with market-wide withdrawals, whereby GIC Re and major international reinsurers had already begun pulling back their war risk cover for Gulf routes well before the first airstrike, responding to escalating tensions in the region. Since 28 February 2026, that withdrawal has risen sharply¹¹. The result is a gap at the centre of the Indian market: insurers issued war risk policies in reliance of reinsurance support that no longer exists, and they are now holding unprotected risk, raising further alarms about solvency margins and Insurance Regulatory and Development Authority of India ("IRDAI") compliances.

A further dimension of the reinsurer-relationship is the follow-the-fortunes principle. Under this principle, a reinsurer must generally honour settlements reached in good faith by the cedant (insurer), provided those settlements fall within the scope of the risk reinsured. In normal times, this principle operates without hindrance. However, in the middle of a dynamic war-risk crisis, it is faced with close scrutiny. Reinsurers can rely on established grounds to push back, for instance, where the original settlement was a gift rather than a genuine legal liability, or where the loss falls outside the reinsurance contract's own scope. Any dispute arising from a refusal to follow in most cases would be subject to arbitration (as per the IRDAI's Circular dated 27 October 2023, "Amendment of Arbitration Clause in General Insurance policies"¹²) and Indian courts have shown inclination to join parties who did not sign the arbitration agreement but form an integral part of the same commercial transaction¹³.

For the Insured

Of the three parties, the insured appears to face the sharpest end of the crisis. In ordinary course, for the longest time, most Indian energy, chemical, and commodity companies bought standard marine cargo policies without separate War Risk Cover endorsements. The premiums were low, the risk felt remote, and the actual possibility of the Strait being closed did not seem feasible. This risk however is no longer distant.

There is a critical aspect specific to India in this coverage debate: on 26 March 2026, Iran's Foreign Minister announced that despite ongoing military escalation in the Middle East, Indian vessels were among five nationalities granted transit passage through the Strait (alongside Chinese, Russian, Iraqi and Pakistani vessels). This carve-out may reduce the war risk exposure for vessels that are genuinely Indian-flagged and Indian-owned, but it does not resolve concerns around vessels carrying Indian cargo that are registered under flags of convenience, chartered through third-country operators, or beneficially owned through intermediaries.

Insureds who are now trying to obtain war risk cover, that they did not previously purchase, face the basic hurdle of complying with the duty of Uberrima Fides (utmost good faith) under the MI Act. Every material fact known to the insured at the time of proposing cover must be disclosed. An insured who knew about the deteriorating Gulf security situation or was aware of the rising war-risk premiums and said nothing while submitting the proposal, now bears the risk of having its claim refused on the ground of non-disclosure¹⁴. Equally pressing is the Sue and Labour obligation on the insured, i.e., the duty to take all reasonable steps to prevent/reduce the loss. In practice, this means rerouting vessels, finding alternative suppliers, moving cargo to safety, engaging with charterers and freight forwarders; and documenting every such step taken contemporaneously¹⁵. Supply chain losses (such as factory shutdowns, feedstock/raw material shortfalls, penalties for late deliveries) are generally not covered by standard marine cargo policies, because those policies require physical damage to a property as the trigger event, something that a closed strait does not technically cause. This seems to be the most significant insurance gap the crisis has exposed for the Indian market, and there is presently no standard policy available that currently addresses this.

II. The Structural Gaps

Business Interruption

A Business Interruption ("BI") cover is designed to compensate a business for lost income when physical damage prevents it from operating. The catch is that there must be physical damage to insured property (for instance, fire, flood, machinery breakdown, structural collapse, etc) for BI cover to lie. What a BI policy does not cover is the present scenario being faced by insureds, whereby a factory is operating well, but it loses its feedstock supply because a foreign strait is closed – the policy does not respond as the factory is not damaged.

There is a solution being discussed that can address this gap precisely, and while it has been available in principle within the IRDAI's regulatory framework, it has not yet been widely adopted in India. This is Alternative Risk Transfer¹⁶ ("ART"), and in particular, parametric insurance covers. A parametric product pays out automatically when a defined event happens, for example, the Strait being closed for more than 15 consecutive days; or Brent crude price breaching a defined threshold, without any requirement to prove physical damage or argue the applicability of an exclusion. While this would resolve exactly the present risk scenarios, the difficulty is that it requires prior IRDAI approval for use, and the uptake has been low. Most Indian businesses have not been offered a parametric product and resultantly, most insurers have not placed one. The gap between what is theoretically available and practically offered is wide, and the practical effect of which is being borne by the insureds. For reinsurers, this gap may be seen as an opportunity to develop new indexed products.

The Bharat Maritime Insurance Pool

On 18 April 2026, the Union Cabinet approved the creation of the Bharat Maritime Insurance Pool ("BMIP")^[17], which is a government-backed insurance system designed to provide risk coverage for Indian-flagged and Indian-controlled maritime vessels operating domestically and internationally even when transiting volatile maritime corridors. This pool has been established for an initial 10-year period, with potential for a 5-year extension. Backed by a sovereign guarantee of INR 12,980 crore, the pool has a combined underwriting capacity of approximately INR 9.5 billion contributed by member insurers. Whether BMIP can deliver on its mandate will depend on several factors: the quality of its reinsurance backing, the robustness of its claims framework, and its ability to attract experienced underwriting and legal expertise. If the pool's underwriting capacity is exhausted or the duration of the pool ends before the crisis, insurers carrying exposures outside the pool will face mounting solvency pressure and IRDAI intervention. The annual reinsurance renewal cycle (January each year, when treaty terms are renegotiated globally) can bring higher premiums, Gulf-specific exclusions in treaties that previously had none, and further withdrawal of CBR capacity that Indian insurers have long relied upon.

When an insurer pays a total loss claim, it steps into the shoes of the Insured and can sue whoever caused the loss - this is called subrogation under Section 80 of the MI Act. In practice, suing the IRGC or the Iranian state is nearly impossible. Sovereign immunity presents a clear barrier and the political context surrounding any such action is evident. Recovery efforts will therefore be directed at charterers, freight forwarders, and shipping operators under the terms of their contracts, who may likely be pursuing their own claims with their respective insurers, and it would be beneficial for insurers to map this recovery landscape early.

III. What Each Party Should Do Now

Guidance from the London market

Before setting out specific recommendations, it is worth looking at what the London market (the global reference point for complex marine and war risk coverage) has done since the strikes. Underwriters have moved quickly to tighten war risk exclusions, introduce voyage-specific endorsements, and reprice Gulf exposures significantly. Insurers are issuing reservation of rights at the outset of claims, before liability is assessed, preserving the insurer's position while the factual and legal picture develops. Reinsurers are also engaging their cedants early, making clear in advance which settlements they will and will not follow. The consistent approach is clear and deliberate: positions are being defined early, coverage is being narrowed with precision, and accumulation risk is being actively managed rather than retrospectively addressed. This is the standard against which Indian market participants should measure themselves.

Insurers

Indian insurers should undertake an immediate portfolio-wide review of all policies with Gulf or related exposure and clearly distinguish between covers that include war risk protection and those that do not. Where coverage is uncertain or potentially excluded, insurers should issue prompt and clearly reasoned reservation of rights notices, as generic or unsupported repudiations are unlikely to be sustained. Every claim must be evaluated on its specific factual and contractual matrix, with particular care taken before invoking war risk exclusions. Insurers should also engage with reinsurers at an early stage to confirm the extent of recoverability under reinsurance arrangements. For ongoing exposures, consideration should be given to transitioning toward voyage-based underwriting for high-risk routes and to participating in BMIP, the pooling mechanisms created to manage exactly this scenario.

Reinsurers

For reinsurers, whether GIC Re, established foreign reinsurers or CBRs, the immediate priority is clarity of position. All treaty and facultative placements involving Indian cedants with Gulf exposure needs to be reviewed to ascertain the precise scope of war risk coverage and the operation of any exclusions. It is critical to ensure that reinsurance terms operate on a back-to-back basis with underlying policies so that unintended coverage gaps do not arise. Reinsurers should communicate their coverage position to cedants at an early stage, including the circumstances in which they will or will not follow settlements, in order to minimise the risk of subsequent disputes. Compliance with regulatory requirements, particularly in relation to cross-border reinsurance arrangements and collateralisation, should be verified. Given the likelihood of disputes, reinsurers should maintain clear documentation of underwriting intent and contemporaneous communications.

Insureds

Insureds must aim to tackle the most basic question: whether war risk cover has been obtained, does it extend to the Strait of Hormuz/affected geographies, and whether it remains operative in the current circumstances. If the answer is no (which may be more likely for many Indian energy and commodity companies), any attempt to procure or modify cover retrospectively should be approached with caution and only with appropriate legal advice, given the strict disclosure obligations under the duty of utmost good faith. Insureds must take all reasonable steps to mitigate potential losses (be it rerouting, alternative sourcing, cargo securing), which must be properly documented in real time. Early engagement with brokers is essential to explore enhancements to coverage, including war risk extensions, contingent BI protection, and parametric or other alternative risk transfer solutions. Finally, insureds should undertake a forward-looking review of supply chain dependencies and insurance structures so that structural gaps are addressed at the next renewal rather than after losses have crystallised.

IV. Conclusion

The closure of the Strait of Hormuz is not the kind of crisis that arrives without warning. The signals were present in the escalating war-risk premiums of early February, the withdrawal of reinsurance capacity, and the geopolitical trajectory of the region. What the crisis has exposed, above all, is the gap between what Indian insurers, reinsurers and insureds assumed about their coverage and what their policies actually operate to do. The present crises have particularly, exposed coverage gaps across marine, agriculture, property, transport and aviation lines and is prompting brokers to review sums insured, war risk positions and business interruption triggers. This gap will potentially lead to disputes in the near foreseeable future.

The key take-away from this (and every major) disruption is that insurance programmes must be stress-tested against scenarios that feel remote or unlikely, not just those that are probable. Closure of the Strait of Hormuz was always theoretically possible, and must have been properly assessed from a risk standpoint for Indian market participants.

The situation at the Strait of Hormuz is constantly evolving and remains unresolved. What is clear however is the legal framework within which the losses of this crisis will ultimately be allocated across stakeholders and an understanding of this framework (the scope of coverage, war-risk exclusions, follow-the-fortunes doctrine, the BMIP and regulatory system, and the obligations of parties) is essential to mitigate the risk promptly and effectively.

Footnotes

1. As defined under Section 2(9) of the Insurance Act, 1938.

2. As defined under Rule 10, First Schedule of the Marine Insurance Act, 1963

3. FOOKS v. SMITH., [1924] 2 K.B. 508

4. United India Insurance Co. Ltd. v. Hyundai Engineering & Construction Co. Ltd., (2024) 6 SCC 310

5. Sections 60 and 61 of the MI Act.

6. Sections 66 and 67 of the MI Act.

7. Sections 78 and 79 of the MI Act.

8. Governed by the Insurance Regulatory and Development Authority of India (Reinsurance) Regulations, 2018 ("Reinsurance Regulations")

9. As defined under Regulation 2(8) of Reinsurance Regulations.

10. As defined in Regulation 5(2)(A) of the Reinsurance Regulations.

11. As corroborated by the report authored by the Reinsurance News accessible here: https://www.reinsurancene.ws/withdrawal-of-persian-gulf-war-risk-cover-viewed-as-credit-negative-for-exposed-us-marine-insurers-fitch/

12. For insurance contracts which did not provide for arbitration executed before 27 October 2023, the parties ought to have amended their contract to provide for arbitration, otherwise, the Circular does not have retrospective applicability. Numero Uno Clothing Ltd. v. United India Insurance Co. Ltd., 2025 SCC OnLine Del 8704

13. ASF Buildtech (P) Ltd. v. Shapoorji Pallonji & Co. (P) Ltd., (2025) 9 SCC 76

14. Sections 19 to 26 of the MI Act.

15. Section 79(4) of the MI Act.

16. As defined in Regulation 2(2) of the Reinsurance Regulations.

17. Cabinet approval for the Bharat Maritime Insurance Pool (BMIP) was granted on 18 April 2026, with a sovereign guarantee of Rs 12,980 crore (approximately INR 129.8 billion) and a combined pool underwriting capacity of approximately INR 9.5 billion. The Cabinet announcement is accessible here: https://www.pmindia.gov.in/en/news_updates/cabinet-approves-proposal-for-creation-of-bharat-maritime-insurance-pool-bmi-pool-with-a-sovereign-guarantee-of-rs-12980-crore-to-facilitate-continuous-maritime-insurance-coverage/