Middle East shipping risk: The insurance chokepoint Bangladesh cannot ignore

When drones began striking energy infrastructure across the Persian Gulf, most observers focused on the missiles. But what actually stopped the ships was not the weapons—it was the insurance paperwork. Within days of the Iran conflict intensifying, several of the world’s largest maritime insurers issued notices cancelling war-risk coverage for vessels operating in the Persian Gulf and Iranian waters. Even though the Strait of Hormuz remained physically open, its effective closure was enforced not by warships but by actuaries.

For Bangladesh, a small open economy whose survival depends largely on imported energy and exported garments, this episode should register as a five-alarm warning requiring immediate policy attention.

The global shipping system is not held together by naval power or diplomatic goodwill. It is held together by insurance. Without proper insurance coverage, including war-risk and political risk coverage, vessels cannot enter ports. Banks refuse to finance cargo, while charter contracts become void. Ship owners, operators, and crews will simply not sail.

Globally, maritime insurance is largely provided by 12 insurers’ clubs, mostly operating out of London and other Western financial centres. Major protection and indemnity (P&I) clubs—including NorthStandard, the London P&I Club, and the American Club—recently issued formal notices withdrawing war-risk provisions from owners’ fixed premium P&I coverage and charterers’ comprehensive shipowners’ liability policies for vessels trading in Iranian waters and the broader Persian Gulf.

The numbers illustrate the scale of what disappeared. Energy analysts at JPMorgan estimated that approximately 329 vessels were operating in the Gulf at the time of the cancellations, collectively requiring roughly $352 billion in maximum insurance coverage. That protection vanished in three days.

No military operation could have disrupted maritime commerce so swiftly, so cleanly, and so legally.

Washington grasped the nature of the crisis faster than most. The Trump administration moved quickly to deploy the US International Development Finance Corporation (DFC) to provide political risk insurance for shipping operations tied to the Persian Gulf. At the same time, President Donald Trump announced that the US Navy would escort tankers through the Strait of Hormuz if necessary—an acknowledgment that physical security and financial protection must operate together. Provide naval escorts without restoring insurance coverage, and the ships will still not sail. This dual intervention reflected a sophisticated understanding of how modern trade actually functions.

The US is not alone in maintaining such mechanisms. Britain operates a war-risk reinsurance scheme that allows private insurers to continue issuing policies by transferring catastrophic wartime risks to the government. The scheme does not replace the private market but stabilises it.

Both models follow the same logic: when commercial insurers retreat from conflict zones, governments must step in as insurers of last resort, or trade stops.

Bangladesh is an export-import dependent economy with a narrow foreign exchange base, a population highly sensitive to food and fuel prices, and an export sector—principally ready-made garment products—that depends entirely on reliable access to global shipping lanes. The country imports virtually all of its petroleum, a significant share of its food commodities, and the raw materials that feed its factories. It exports through the same maritime corridors.

The Gulf crisis has already inflicted measurable damage. Qatar’s decision to halt LNG production forced Bangladesh onto the spot LNG market at significantly elevated prices, placing pressure on the forex reserves and contributing to domestic inflation. Energy price shocks of this kind ripple quickly through an economy with limited fiscal buffers. Yet, the insurance dimension of the crisis has received relatively little attention in Dhaka’s policy circles.

If war-risk insurance were to disappear from the trade routes connecting Bangladesh to its energy suppliers in the Gulf—or to its export markets in Europe and North America—the disruption would not be gradual. It would be sudden, severe, and extremely difficult to mitigate through conventional monetary or fiscal policy. No central bank rate adjustment can compensate for ships that will simply not sail.

Bangladesh, therefore, needs to develop sovereign maritime reinsurance capacity, and it should begin doing so now while the lessons of the Hormuz disruption remain fresh.

The architecture need not be complex. The country does not need to replace global P&I clubs or underwrite the entire Gulf shipping market. What it needs is a targeted government-backed backstop: a facility capable of providing excess-of-loss reinsurance support or sovereign guarantees that allow war-risk coverage to remain available for vessels serving critical Bangladeshi trade routes when commercial markets withdraw.

This is essentially the British model, applied to a different scale and context. London does not assume that private insurers will always remain willing to cover wartime risks; it has built a public backstop precisely because it knows they will not. Bangladesh should apply the same realism.

A parallel avenue worth exploring is the creation of a regional maritime insurance consortium among geopolitically non-aligned Asian states. Countries such as Bangladesh, Sri Lanka, Vietnam and Indonesia, for instance, share the same structural vulnerability: they depend on the same shipping corridors, face the same geopolitical risks, and possess no independent capacity to stabilise insurance markets when Western underwriters withdraw. A pooled sovereign reinsurance mechanism would allow these economies to collectively provide the financial guarantees that none could provide alone.

Several practical steps could be pursued immediately. First, open formal dialogue with major maritime P&I clubs to understand what sovereign guarantee or premium stabilisation mechanisms might look like. Second, explore whether Bangladesh-linked shipping could access political risk insurance through the US DFC, a mechanism specifically designed for crisis environments. Third, design a domestic sovereign war-risk reinsurance facility, even if a modest one, that could be activated quickly during geopolitical crises. And fourth, initiate diplomatic outreach to like-minded Asian economies to explore the formation of a regional maritime insurance pool.

The logic for initiating diplomatic outreach is straightforward: a consortium of non-aligned nations providing mutual maritime insurance backstops would reduce collective dependency on Western financial institutions whose policies may be shaped by geopolitical pressures.

Most discussions of geopolitical threats to global trade focus on military dangers: naval blockades, missile attacks, or the seizure of vessels. These threats are real, but the framework is incomplete. The financial infrastructure of trade—insurance, clearing systems, correspondent banking, and credit facilities—is equally vulnerable and, in some ways, easier to weaponise. Financial disruptions leave fewer fingerprints and generate far less international backlash than firing missiles. Countries that understand this will invest in sovereign capacity across the full spectrum of financial infrastructure, not just military deterrence. But countries that don’t may repeatedly find themselves blindsided, not by the weapons they feared but by the paperwork they ignored.

The Strait of Hormuz remains open today. But the next time a crisis erupts—in the Red Sea, the South China Sea, or elsewhere—the decisive question will again be the one that paralysed shipping in the Gulf this year: not whether ships can sail, but whether they are insured to do so. Bangladesh should have an answer ready.

Shafquat Rabbee is a Bangladeshi-American geopolitical columnist and the founder of the news platform Centrist Nation.

Views expressed in this article are the author's own. 

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