Oil prices continue to rise! The shipping industry questions Trump's escort promise: Are the destroyers enough? Is the insurance reliable?

On Tuesday during the U.S. stock market midday session, Trump announced the Hormuz Strait escort plan, which temporarily caused oil prices to fall back, but it did not effectively calm the situation. As of press time, Brent crude oil has risen again, breaking through $84 and approaching previous highs.

Trump stated that the U.S. will ensure the smooth flow of energy through insurance guarantees and military escort measures across the Persian Gulf. This statement briefly suppressed the rise in oil prices on Tuesday. However, according to Bloomberg, the shipping industry generally believes that this plan is at best a partial solution to this historic crisis, not a fundamental fix.

Wallstreetcn previously published an article titled “Trump Orders Dual Measures to Protect Gulf Shipping, Iran Warns Ships Not to Pass Through Hormuz,” citing experts who said, “If Iran continues to resist, even with U.S. guarantees, full recovery of shipping traffic through the strait will take several weeks.”

Currently, details of the insurance and escort plans mentioned by Trump remain unclear. But Iraq’s production cuts have already occurred, and storage tanks along the Persian Gulf are continuously filling up. The longer the wait, the greater the damage to the supply chain.

Hormuz Dilemma: Passage Closed, Energy Supply Chain Under Pressure

The impact of the Hormuz Strait blockade has quickly spread to upstream supply sources. Iraq, the second-largest oil producer in the Middle East after Saudi Arabia, has begun significant production cuts and faces further pressure to reduce output, signaling the most direct pressure on regional suppliers.

Ships unable or unwilling to pass, producers’ exports hindered, and the freight market falls into chaos.

Karnan Thirupathy, partner at Kennedys Law LLP and expert in commodities, shipping, and insurance, said: “The core concern for shipowners is the real risk of loss. Once the risk of loss becomes too high to bear, no one will enter this route.”

Insurance Guarantee: Precedents Exist, but Scale and Implementation Challenges Remain

Trump’s proposed plan relies on the U.S. International Development Finance Corporation (DFC)—an agency primarily supporting private sector financing for developing countries—to provide guarantees for lessees, shipowners, and key maritime insurance institutions.

Such mechanisms are not without precedent. In November 2023, an insurance scheme involving Lloyd’s insurers and the Ukrainian government was established to provide affordable war risk coverage for ships exporting Ukrainian grain and other goods. DFC has also previously participated in war risk reinsurance arrangements.

However, according to Bloomberg, several shipowners have expressed that, covering oil and natural gas transportation across such a large area in the Persian Gulf involves far more producers and consumers than the Ukraine scenario, making it significantly more complex. They remain cautious about tying their fate to the policies of the unpredictable U.S. government.

RBC Capital Markets analysts noted in a report: “Although Trump’s statements on insurance and escort measures triggered a correction in oil prices, we remain skeptical about the current planning level of the insurance guarantee scheme and believe rapid implementation may face many challenges.”

Naval Escort: Confidence and Capability Under Dual Tests

The escort plan also faces multiple practical obstacles. Several anonymous shipowners said, “Given Iran’s ongoing attacks and the U.S. Navy’s simultaneous military operations against Iran, whether naval escort can effectively boost market confidence remains uncertain.”

Many oil tankers are neither U.S.-owned nor flying U.S. flags, further complicating escort arrangements.

RBC also wrote in the aforementioned report: “The U.S. is currently leading operations against Iran. A key question is whether the Navy has enough assets to escort ships while continuing its operations against Iran.”

Meanwhile, several shipowners cited the Houthi attacks as a precedent, expressing doubts about the actual effectiveness of the escort plan.

Timeframe: Implementation Takes Time, Both Supply and Demand Sides Cannot Wait

Even a phased plan aimed at restoring limited shipping flow requires considerable time from design to execution. And this is a cost that producers and consumers find hard to bear. Iraq’s production cuts have already taken place, and storage tanks along the Persian Gulf are filling up. The longer the wait, the deeper the damage to the supply chain.

Warren Patterson, head of commodities strategy at ING Groep NV, said: “This is good news, but it obviously won’t happen overnight. Naval escort will help, but it also takes time. Escort ships will be sitting ducks in the face of Iranian attacks.”

With details of both insurance and escort plans still unclear, the shipping industry remains cautious. Shipowners are watching the scope and costs of insurance coverage, and restoring confidence is far from achievable with a mere statement.

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