Tehran Is Using Insurance Rates as a Weapon of War

Commentary

Iran has established de facto control over the Strait of Hormuz, despite the losses in its air, missile, and naval forces. It has achieved that by demonstrating the ability to inflict catastrophic costs on shipping that does not comply with its “regulations.”

In effect, Tehran is using insurance rates as a weapon of war. Lloyd’s of London, which insures more than 85 percent of the world’s mercantile shipping and cargoes, just announced prohibitive insurance rates for shipping in or entering the Persian Gulf. Shippers must now pay an insurance premium equal to 10 percent of the total value of their ship and cargo. That cost has kept more than 900 ships frozen in place on both sides of the Strait of Hormuz. The little traffic that transits the strait uses Iran’s designated channel to ensure unhindered transit.

Critics have excoriated Lloyd’s new rate for being more than double the rate charged during the 1980s “tanker war” when Iran and Iraq were attacking each other’s oil shipments. However, today’s attacks are costlier and deadlier than those of 40 years ago. The cruise missiles and rocket-propelled grenades of the ’80s damaged pilot houses, occasionally injured crewmen, and started small fires that were easy to extinguish. The ships could be repaired economically and returned to service or replaced by reactivated surplus hulls.

That is not the case today. Iran’s drones use internationally prohibited cluster munitions with incendiary warheads that instantly ignite fires across a fuel carrier’s breadth and length. Crew deaths are almost assured, and the fires overwhelm the ships’ firefighting systems, permanently damaging fuel lines and transfer systems. The ship may remain afloat and most of its cargo may be saved after one to three days of firefighting, but it will never return to service.

The insurer is tagged with the $200 million to $300 million cost to replace that ship. Iran’s mines, suicide fast-attack craft, and unmanned surface and underwater vessels are not as deadly as the drones, but they can inflict hull damage that cripples or sinks ships, potentially blocking a channel and creating an environmental disaster with a billion-dollar price tag that insurers must also cover.

Mines primarily serve as psychological weapons when employed in small numbers, but it takes only one ship hitting a mine to deter others from entering those waters. An open tanker hull can spill thousands of barrels into the sea, with costly environmental effects. Tehran’s leaders recognize that. In fact, their strategy incorporates the political impact of those events and the resulting astronomical insurance rates.

Those rates escalate the cost of oil beyond just the price per barrel. It is a supporting component of the regime’s economic warfare strategy. The clerics believe that they need only stop the flow of oil and drive up its price for a few more weeks, and America’s allies, the public, and some political elites will force a cease-fire. The regime is betting its survival on that. It remains to be seen whether the clerics are correct in their thinking.

The clerics legitimately fear that their supporters in the Islamic Revolutionary Guard Corps and paramilitary Basij force may abandon their posts and the Iranian army join the uprising. Only time will tell if those possibilities become reality, but an early cease-fire would increase the regime’s chances of survival.

Everything with a beginning has an end, and the ongoing Middle East conflict will be no different. The U.S. administration will be judged by what it did or did not accomplish. If Iran’s ability to support terrorism and its nuclear program and materials are devastated, and the government abandons its terrorist past, some will argue Operation Epic Fury was a success. Others will decry it regardless of the outcome. But its impact will reach far beyond the Middle East, and prudent leaders should study how its lessons may affect other global security concerns.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.