By Joseph Busby, the founder and director of Reality-Based Analysis Group (RBAG), an independent geopolitical analysis firm founded in Vienna in 2017 and affiliated with the Association for the Promotion of International Development and Stability (APIDS, apids.at). Originally published at the RBAG site.
I. The Hidden Price Increase
Since the United States and Israel began the war with Iran on 28 February 2026, the cost of ordinary life has climbed on both sides of the Atlantic and across the world. Between mid-February and mid-October the average price of regular gasoline in the United States rose about 48 percent, from $2.92 a gallon to $4.33, and American households that heat with oil are facing a similar increase at $6.14 a gallon from $4.07. In the European Union a litre of diesel rose 34 percent, from €1.59 to €2.14. Europe’s benchmark gas price has nearly tripled, from about €30 a megawatt-hour in mid-February to about €87 in mid-October, its highest level since the energy crisis of 2022. The price of oil (Brent crude) went from about $70 a barrel in mid-February to about $110 in mid-October. The United Nations Food and Agriculture Organization reports demonstrate that food prices globally have risen 8.5 percent since the attack on Iran.
This is not only a matter of supply and demand. Part of the rise in price is due to the hidden costs of insuring ships against war, which, like most costs, are passed down to the consumer. This also means that even if supply and demand shift back to pre-war levels, part of the price may not come back down. For example, during the June “truce” the price of oil briefly fell to its pre-war levels, but the price of insuring the tankers which carry it through the Strait of Hormuz did not; thus the price was higher than it could have been without the war.
The figures are stark. Prior to the war, shipowners sending a supertanker through the Strait of Hormuz paid approximately one quarter of a percent or less of the ship’s value for a week of “war insurance.” A modern supertanker, carrying two million barrels of crude oil, is worth approximately $150 million; it paid a little under $400,000, which works out to about twenty cents a barrel for insurance. By late July, that same insurance coverage had risen to between seven and a half and ten percent of the ship’s value. That is an increase from twenty cents to between $5.60 and $7.50 on every barrel. By September, according to Lloyd’s List (the industry’s oldest trade paper), it was between $7 and $8 per barrel. This is a thirty- to forty-fold increase, at its highest an almost 4,000 percent rise in cost. This “hidden cost” has nothing to do with supply and demand and it is unlikely to go away.
Here is why: both Iran and the United States claim to control the Strait. Iran administers passage through it via a new government authority, the Persian Gulf Strait Authority (PGSA); the United States enforces a blockade and has issued sanctions against the PGSA so that any entity doing business with it risks significant financial and other penalties. Each country claims the right to say who may pass through the Strait and how, and ships cannot comply with both the PGSA and the United States. Neither the United States nor Iran has hesitated to enforce their claims with violence, and a truce does not solve the problem, because even if the shooting stops, the sanctions remain. As such, the great insurance companies, the “reinsurance companies” which provide insurance to other insurance companies, are struggling to correctly “price” the risk of the situation.
II. Reinsurance
The ordinary consumer never sees, and possibly has never heard of, reinsurance or reinsurance companies. These are the firms which provide insurance to other insurance companies, to protect them against the great losses, which otherwise could threaten their existence. An example is the destruction wrought by hurricanes and other natural disasters. Insurance purchased from Munich Re, Swiss Re, or Hannover Re (just to name a few) does not appear on a customer’s bill, but the prices they charge and the decisions they make regarding what they will and will not risk protecting play a direct role in determining what consumer-facing insurance companies can offer and what they charge.
The reinsurance market sets many of its renewal rates on the first day of each year, and almost four years ago it had what the industry itself calls a “major disruption.” The first of January 2023 came just a few short months after Hurricane Ian struck southwest Florida, killing 156 people and causing approximately $112 billion of damage, approximately half of which was insured. It was the costliest hurricane in Florida’s history. The market was already under stress. Inflation made the cost of rebuilding more expensive, so each claim cost more than anticipated and rising interest rates cut into the value of the reinsurers’ bonds, reducing their capital. And all this just months after the conflict between Russia and Ukraine exploded into war. The result was that in January 2023, catastrophe reinsurance prices rose by approximately 37 percent worldwide, and by about 50 percent in the United States.
The industry did not stop covering hurricanes, but they changed how they provided coverage, limiting their losses and dropping coverage for smaller or more frequent events. As Munich Re’s new Chief Executive Christoph Jurecka stated at one of the industry’s most important annual gatherings this week in Baden-Baden, Germany, reinsurance firms are not obliged to accept any and all risks. Swiss Re’s Velina Peneva emphasized that, indeed, this is how they stay in business over the long term, a statement to be taken seriously when made by one of the leaders of a firm which was founded over one hundred fifty years ago, during the American Civil War. In fact, after January 2023, some insurers in the United States were not able to obtain the same degree of protection they had purchased previously and the cost of the new policies was passed down to the American consumer. Homeowners’ insurance in the United States rose drastically in the following years, most obviously in Florida, where homeowners in 2023 paid an average of $6,000 against a nationwide average of $1,700. Seven Floridian property insurers went out of business and the state placed part of the blame for the price increase on reinsurance companies. After legislative reforms, the price in Florida began to subside, although nationally, prices continue to rise. The lesson, however, is that when there is a shock to the system, prices rise swiftly and significantly and go down very slowly. When it comes to war, a similar pattern is visible.
Normal marine insurance explicitly excludes war. Shipowners seeking protection from acts of war, such as missile attacks, seizure or confiscation, or side-effects of war, such as naval mines, must purchase separate short-term policies called “war risk insurance”. Areas considered dangerous are listed in a publication made by the London-based Joint War Committee and any ship entering one pays an additional premium based on a percentage of the ship’s value. As wars can change in swift and dynamic ways, these policies can be cancelled on short notice and the price for this sort of coverage can change on a weekly basis. The companies which offer this coverage purchase reinsurance to cover their own potential losses.
Reinsurance companies, however, will not cover everything and also explicitly exclude certain war zones, such as Ukraine and Russia. In the war in the Gulf, by the time of the July 2026 renewals, many declined to continue coverage on higher risk installations such as airports, desalination plants, refineries, and risks tied to Western interests in the Gulf, all of which are clearly possible targets. Notwithstanding this change, reinsurance covering war, terrorism, and political violence is running at a loss for the first time since the attacks on 11 September 2001. This leads us to the present moment, in which the United States again threatens a massive attack on Iran (at some point after the American mid-term elections) and Iran promises a significant reprisal. The reinsurance renewals on 1 January 2027 will follow shortly thereafter and will be the first in which almost a year of violence is accounted for.
Expect increases. Increased premiums do not remain with the shipowners; they are reimbursed by the businesses who hire them to transport their goods, who then pass the extra cost on in the form of a higher price. Specifically, the increased premium flows from the reinsurer, to the insurer, to the shipowner, to the trader or refiner or importer, and then to the customer, who pays a higher price for their food, fertilizer, and fuel.
III. Catch-22 in the Strait of Hormuz
With both the United States and Iran demanding contradictory protocols for passage through the Strait of Hormuz, it is literally impossible for any ship to comply with both countries’ requirements. A ship which complies fully with Iran’s PGSA risks not only sanctions but attack and seizure by the United States Navy. A ship attempting to pass through the Strait without complying with the PGSA risks attack or seizure by Iranian forces. Reinsurance does not know how to price this situation.
The reason is that insurance prices war as an “event” that happens, with a beginning, a middle and a clear ending after which claims are settled and prices reset. The situation in the Strait of Hormuz, however, while part of an “event,” is actually a potential change in condition. It may be the transformation of a previously free maritime chokepoint into something akin to a canal. This would require either an outright Iranian victory or an American withdrawal of their blockade and sanctions. In the meantime, the current moment, ships face not only kinetic dangers from both combatants, but potential losses from the act of compliance itself. Specifically, during the June truce, which lifted the American blockade, sanctions on the PGSA remained in place; thus, insurance policies issued after the 1 July renewal had the option of featuring a clause allowing instantaneous cancellation if it were discovered that a ship had paid the PGSA for passage. This created a paralyzing effect and remains a hidden reason contributing to the backlog of ships languishing in the Gulf.
The way out of this dilemma is one the United States appears unlikely to voluntarily accept, which is the acceptance of the PGSA as the administering authority over the Strait, thus converting it, for insurance purposes, into something as priceable as the Suez Canal. Ships have paid scheduled fees for passage through the Suez and Panama Canals for well over a century and these costs are regularly passed on to consumers. However, unlike a manmade canal, the Strait of Hormuz is a feature of natural geography. An internationally accepted Iranian monetization of passage would be a precedent for all other similar maritime chokepoints across the globe. In July 2026, we noted in The Monetization of Multipolarity that this process is taking place simultaneously in six separate maritime chokepoints. Concern from the United States has been explicitly stated on the record by none other than US Secretary of State Marco Rubio, who declared that the Hormuz model “could be repeated in multiple other places around the world.” Thus, the United States is attempting to fight both a specific threat in Hormuz as well as an expanded one globally and its chosen weapon is sanctions.
Iran is extremely unlikely to give up its control of the Strait of Hormuz or do away with the PGSA. In fact, it is expanding the model and seeking to establish a Persian Gulf Data Authority, suggesting the possibility of regulating AI and data centers in the region. This announcement carried a warning, and an explicit threat, against data centers or AI used against Iran, and AI and data centers are two other areas of extreme interest to the great reinsurance firms. Even if Iran did negotiate away the PGSA in a settlement of the war, prices are unlikely to fall to pre-war levels due to the precedent set by the ease with which Iran demonstrated its ability to seize control of the Strait at any time. That reality would be priced into any new policies.
This is also why the situation in 2026 is different from the Iran-Iraq war of the 1980s, which also featured attacks on shipping. During that conflict, over 500 vessels were attacked. Insurance premiums fluctuated throughout the war, which the industry treated as one long discrete “event.” They were correct to do so, as, when the war was finally over, shipping in the Gulf normalized. There was no 1980s version of the PGSA or an American blockade, and there was no possible local monetization of the Strait of Hormuz during the Cold War. The differences between then and now are not just in the nature of war, or the relative strength of the Islamic Republic; it is that in a multipolar world, the global contest for control of maritime chokepoints is underway in earnest and Iran has built a mechanism for permanent administration of the one in its control.
Thus, it is more likely that the Catch-22 situation will remain and that the 1 January 2027 policies will show a change akin to the 2023 ones. While in that year hurricane coverage changed drastically, in 2027 reinsurance policies in the Gulf are likely to be for much smaller amounts, to decline coverage altogether for Western-linked interests, especially high-value data centers, and will be written in such a way as to absolve reinsurers from any costs arising due to sanctions. The price of passage through the Strait of Hormuz is about to get even more expensive.
IV. Not Just the Strait of Hormuz
The conflict between Iran, Israel, and the United States has expanded and active hostilities have broken out between Saudi Arabia and Yemen’s Ansar Allah (often called the Houthis). As of late September 2026, Ansar Allah had declared and was enforcing a naval blockade of Saudi Arabia, attacking Saudi tankers in the Red Sea, in addition to their substantial territorial advances. At this writing, Ansar Allah has effective control of the Bab el-Mandeb strait at the southern boundary of the Red Sea, which by default means effective control of the southern approach to the Suez Canal. The insurance market has responded accordingly. By late September, Saudi-linked tanker ships in the Red Sea were offered insurance at approximately three percent of their value; ships with no links to the Saudi Kingdom paid between 0.2 and 0.3 percent. Saudi Arabia has two options for export of its oil: the Red Sea or the Strait of Hormuz. Understanding the blockade of both is helpful in understanding the decision-making process of Saudi leadership in their conduct against Ansar Allah.
In the Black Sea, in a conflict thus far only tenuously connected to the wars in the Middle East, a similar process took place. In late 2025, Ukraine began striking Russian-linked tanker ships, with Russia responding in kind and in force. Insurance prices responded as well, and the area designated as a war zone expanded from the coasts of both nations to encompass almost the entire Black Sea. The impact of the insurance increases was tangible and noted publicly. The Prime Minister of Bulgaria bemoaned the attacks, one of which had sunk a ship just off his coast, pointing directly at the impact on rising insurance costs. Ukraine’s Foreign Minister called the attacks a “hidden tax” on international trade. As of this writing, attacks on ships in the Black Sea continue by both sides and the insurance policies shift, narrow, and become more expensive accordingly.
Wartime reinsurance risks are in no way limited to shipping. In Baden-Baden this week, the major reinsurance company heads again and again focused upon the dangers of insuring major data centers, the vast complexes which run the artificial intelligence systems entering our world. These centers are worth billions of dollars and are often clustered closely together. And on 1 March 2026, the day after the Israeli and US “decapitation strikes” against the Iranian government, Iranian reprisal drones struck two Amazon Web Services data centers in the United Arab Emirates. They remain offline. A third center was damaged in Bahrain. It is perhaps a dark harbinger of wars to come that an Iranian attack on an AI center was in reprisal in part for an American AI-powered attack targeting a school in Minab, killing 157 children, the day before. On the final day of March, the Iranian Revolutionary Guard Corps (IRGC) publicly named as military targets eighteen American technology companies and their facilities in the Gulf region. These included Microsoft, Google, Apple, Meta, Oracle, and Amazon, among others.
In September, Russia began attacking data centers in Ukraine; in October, Ukraine began reciprocating against data centers in Russia. In Ukraine, this resulted in a loss of internet access to 100,000 households. In Russia, the attacks targeted the Yandex facility used for supercomputing AI development. These attacks continue and reinsurance companies are paying attention. A single site can cost $20 billion to build and, to date, the risk has been considered to primarily stem from extreme weather or fire incidents, not war. This is about to change. Prior to the conflict in the Gulf, a developer of a data center could purchase up to $3 billion of separate specialty war coverage; by April 2026 this was limited to approximately $100 million. The annual cost for that $100 million had soared 20-fold, from a quarter-million dollars to five million. By September, plans in the UAE for a mega-data center AI campus had been shelved in favor of a more dispersed concept with discrete locations spread across the nation rather than concentrated in one massive uninsurable target.
Pricing is changing. Saudi ships pay a different price in the Red Sea than non-Saudi ships. Non-Western-linked data centers in the Gulf pay a different price than American ones. Pricing models used to focus on location, value, and activity. Now they are beginning to price nationality and political affiliation. 1 January 2027 looms.
V. The Price Tags
Outside of war, reinsurance is becoming more affordable, not less, and this too will be passed down to the consumer. The 2026 hurricane season has been one of the quietest in a century, and after the September Monte Carlo reinsurance conference, analysts anticipated a general decrease in prices of between 10 and 15 percent. Except, of course, with respect to war, terrorism, or political violence. In Baden-Baden this week, the second major reinsurance conference of the year, geopolitics was the elephant in the room, the unpredictable, the difficult to model, and as such, the much less discussed.
But it is in these rooms that the decisions are being made which will determine the 1 January 2027 premium prices which will be passed down to, and paid by, consumers across the globe. For the reader who would never otherwise come into contact with reinsurance, and who may wonder why, exactly, the price of so many goods has risen due to war none of them chose, reinsurance plays a critical role. It is important to recognize that these price increases are global and hit the poorest countries and their populations with greater impact than the wealthiest nations. A 1 percent increase in the price of food in rural Kenya has a different impact than one in Switzerland. It is here that prices begin to have humanitarian consequences.
It can be anticipated that war premiums will rise, sharply and swiftly, and they will go down much more slowly if at all. What to watch for is not a truce or ceasefire in the Gulf or the Red Sea; it is whether or not the United States lifts its sanctions regime against the PGSA; whether the PGSA is able to successfully establish itself as an uncontested bureaucratic administrator of passage through the Strait of Hormuz; and whether insurance companies drop the clause allowing cancellation of a policy if a shipowner pays the PGSA. Should these things take place, rates will fall and price tags around the world, for food, fuel, fertilizer and more, will eventually fall accordingly. If not, the financial burden will continue to be placed on the consumer and we will all pay the price.
