Unlock the White House Watch newsletter for free
Your guide to what Trump’s second term means for Washington, business and the world
The US Development Finance Corporation is creating a $20bn reinsurance facility to restart maritime cargo and oil commerce stalled by the closure of the Strait of Hormuz following the American and Israeli strikes on Iran.
DFC chief executive Ben Black and Treasury secretary Scott Bessent on Friday unveiled the facility, which follows a directive from President Donald Trump to create a political risk insurance and financial security mechanism to ensure free energy flows. Trump said the US Navy would escort tankers through the Strait if necessary.
Black said the facility, which will initially provide up to $20bn in cover on a rolling basis, would “restore confidence in maritime trade and stabilise international markets”.
DFC, the US government’s international investment arm, will closely co-ordinate with Central Command, which runs American military operations in the Middle East.
“Working alongside Centcom, DFC coverage will offer a level of security no other policy can provide,” Black said. “We are confident that our reinsurance plan will get oil, gasoline, [liquefied natural gas], jet fuel and fertiliser through the Strait of Hormuz and flowing again to the world.”
Shipping through the Strait is in effect blockaded by the war with Iran, with Tehran threatening to strike any vessels that traverse the waterway.
About 500 oil and gas tankers were stuck in the Gulf and surrounding waters as of Thursday, according to Lloyd’s Market Association. Fewer than 50 tankers have passed through the strait this week.
Restarting traffic through the strait, through which about a fifth of global oil supply flows, has become a priority for Trump as he looks to stem a politically damaging surge in petrol prices ahead of November’s midterm elections.
Voters are frustrated with persistent inflation that has triggered a cost-of-living crisis. The average price of petrol is now $3.32 per gallon, its highest level since mid-2024.
The DFC facility will provide a total of $20bn reinsurance at any given point but that amount could rise over time, said an agency official.
The agency said it had identified US insurance companies to partner with on the plan.
Qatar’s energy minister on Friday warned the war with Iran could “bring down the economies of the world” and predicted Gulf energy exporters would stop production within days. Brent crude rose above $92 a barrel on Friday, its highest level since the start of the war.
The DFC plan comes after insurance and energy specialists expressed scepticism this week about the capacity to underwrite the extensive risk involved in ships transiting through the Gulf.
JPMorgan said DFC had access to just $154bn of the $352bn needed to fully insure the 329 oil vessels in the region, covering the risk of oil pollution, salvage, hull and third-party liability coverage in the event of a total loss.
The agency has a statutory ceiling of $205bn on its total liability through 2031, of which it had used $51bn by the end of 2025, according to the bank.
But the DFC official disputed JPMorgan’s assessment, saying the bank was looking at wider insurance coverage while the agency would focus on covering hulls, machinery and cargo.
He said the facility would be only required for shorter periods when ships were in the war zone. The DFC is compiling the conditions for eligibility for the kinds of ships that can apply to the facility.
“We’re tailoring it to the specific policies that the market needs to restart maritime commerce,” the official said.
He added the facility would help alleviate the exorbitant cost of insurance, while the navy would provide the security needed to give ship captains confidence to sail.
A navy escort operation would require destroyers and jets flying above vessels. Even with risk insurance and escorts in place, tankers would be vulnerable to attacks from Iranian forces, which could use speedboats armed with rockets and deploy small missiles, anti-ship missiles, drones and mines.
During the so-called tanker war in the 1980s, Kuwaiti tankers reflagged as American and more than 30 US destroyers escorted vessels out of the strait.
Marcus Baker, global head of marine, cargo and logistics at Marsh, the world’s largest insurance broker, said it was important to ascertain how the plan would actually work in practice.
But he added that “additional capital coming in to the market to support the war insurance . . . has to be a good thing for shipowners as it will in all likelihood reduce pricing”.
Credit: Source link
