Energy Musings - March 13, 2026
The Iran war continues, with significant upheaval for global oil markets. Efforts to reopen Hormuz are a high-priority, to help ease the global oil shortage. There are lessons for the U.S.
Straits Of Hormuz Lessons For The U.S.
News photos show tankers ablaze in the Persian Gulf, as Iran is fighting to keep the Straits of Hormuz closed to international shipping. Daily, approximately 20% of the world’s crude oil and LNG output flows through Hormuz, the most significant global oil chokepoint.
While the numbers within the black circles on the world map below should be ignored, the circles and their size demonstrate how significant each chokepoint is. The Straits of Hormuz is the largest and most important, followed by the Straits of Malacca in Southeast Asia, the Suez Canal, the entrance to the Red Sea (Bab el-Mandab), the Turkish Straits (entrance to the Black Sea), and finally the Panama Canal. The lines on the map show the typical routes oil flows, and when one chokepoint is closed, the volumes on the alternative routes swell.
When the Houthis in Yemen began attacking ships entering the Red Sea several years ago, oil tankers avoided the shorter Suez Canal route to Europe. They made the journey via the Cape of Good Hope off the tip of South Africa. The alternative route added weeks to travel time, lifting the cost of delivered oil in consuming ports.
Oil flows are at risk of an adverse event that could shut down key passage points.
The photos of oil tankers ablaze, such as the Mayuree Naree, have stirred memories of the Persian Gulf Tanker Wars of the 1980s. Those wars were an offshoot of the war between Iraq and Iran that started in 1980 and lasted for eight years, claiming over one million casualties. While primarily a land war, it expanded into the waters of the Persian Gulf when Iran decided to attack the oil operations of Iraq.
One of the Gulf ships that Iran attacked.
The Iranians began attacking oil platforms in the Persian Gulf along with tankers carrying Iraqi oil exports. This was part of Iran’s “campaign of economic attrition and political intimidation.” The escalation attracted international attention because of its threat to shipping and global oil supplies. The threat was magnified when naval mines were deployed in 1984, though most mine strikes occurred in 1987.
President Jimmy Carter issued a declaration justifying the use of the U.S. military to prevent any power from fully dominating the Persian Gulf. With the military conflict spreading beyond Iran and Iraq, various Gulf countries sought to reflag their merchant vessels under other nations’ flags for protection. Kuwait was aggressive in seeking to reflag its oil tankers. After the U.S. learned of a potential Soviet Union-Kuwait reflagging deal, it upped its diplomatic efforts and offered to protect each reflagged Kuwaiti tanker.
This agreement led the U.S. Navy to begin escorting oil tankers through the Straits of Hormuz. However, the first tanker hit a floating mine, putting a five-by-eleven-foot hole in its side. Immediately, the U.S. Navy realized it needed to deploy its aging mine-sweeping fleet to clean up the waterway before it could safely escort more tankers. This was done successfully, but only after a pause in the escort efforts.
The recent reports of Iran placing mines off its coast in the Straits have likely raised the stakes for vessel passages. However, reports indicate that a handful of tankers have safely passed through the Straits after being allowed by the Iranian military. How has that happened?
Iranian-flagged tankers carrying oil to China are reportedly among the vessels allowed to pass. Others have reportedly turned off their Automatic Identification System (AIS), in effect traveling in “dark mode,” hoping not to be picked up by ship-tracking systems or the Iranian military. The last way some ships have passed was by declaring that they were Chinese ships and not the cause of the war, so begging for protection while they move Iranian oil to China.
While we do not know, we suspect these ships are traveling through the Straits of Hormuz without insurance. That is a risky endeavor. Not only are the ships and their cargoes at risk of destruction, but there is the risk of an oil spill that could pollute the water used by the 65 desalination plants around the Persian Gulf.
Traveling without insurance highlights two facts about the shutdown. First, the closure of the Straits has been orchestrated by the insurance industry, rather than the Iranian military. The fear of being attacked has shipowners reluctant to send their vessels and crews into a high-risk area. Secondly, Iran is enforcing a selective boycott on ships not “favored” by the government. This means Iran may be able to export a few hundred thousand barrels of oil to customers, which is critical since the government needs the income to support its military activity.
A key oil shipping route with no activity.
While shipping activity in the region remains much as shown on this map from the early days of the war, the selective way in which some favored tankers and cargo ships have been allowed to pass creates a challenge for the U.S. and Israeli efforts to end the war.
The Trump administration initially indicated it would provide insurance backup for ships traveling through the Straits. The mechanics of such a plan have proven to be more complex than initially thought. The maritime insurance business is more complex than most people understand. It is more complex than buying car or homeowner’s insurance.
The U.S. has said it will provide escort protection for ships wanting to pass through the Straits, but it is not prepared to do so yet. That is because it needs its naval fleet to continue waging its attacks on Iran. The role of escort ships is quite different from that of normal naval activities, so the ships must be prepared to face a radically different risk.
Iran’s use of surface-to-surface rockets and drones, which can be highly mobile, complicates their elimination by the U.S. The U.S. has eliminated the Iranian navy, having destroyed 40+ ships. It has also destroyed a number of the small, high-speed ships used to attack ships.
Because rockets and drones are being launched from coastal ports, the U.S. has warned civilians to leave those port areas before they are attacked. We expect attacks on the ports will be the next step in the effort to reopen the Straits to normal ship traffic. These launch sites need to be eliminated because the time between their firing and hitting ships passing through the narrowest portion of the Straits makes it difficult for naval vessels to shoot them down. We are talking about distances of 4-5 miles.
Iran’s ability to effectively close the Straits of Hormuz to ships it does not favor is bolstered by the cancellation of war-risk insurance for vessels seeking to transit the straits. Understanding the maritime insurance issue is a topic we are researching further and will be covered in a future Energy Musings. Suffice it to say that selective boycotts are an issue the U.S. should consider, given our lack of a U.S.-flag fleet to keep U.S. imports and exports flowing at all times. Can we rely on our allies to provide the ships we need during a military confrontation? This risk increases our national security challenge. It must be factored into the debate about how and how quickly the U.S. can revitalize its maritime industry.