The Strait of Hormuz: Defining 'open' in a complex market landscape

Vessel re-routing and surging costs have defined the freight market since the onset of the conflict. 

The closure of the Strait has shifted crude and refined product loadings in the Middle East to ports outside the Strait, such as Fujairah, Sohar, Mina Al Fahal, and Duqm in the Gulf of Oman, as well as Yanbu, Rabigh, and Jazan on the Red Sea. The combination of trapped vessels within the Strait, widespread route diversions, and reduced cargo volumes from the region has compelled many tankers to ballast to the Atlantic Basin in search of new employment opportunities.

In addition to US and Iranian controls on vessel movements, market participants have identified insurance as a key barrier to commercial transit through the Strait. Following the outbreak of the war, war risk premiums for routes transiting the Strait surged by over 1,000%. Prior to the war, market participants reported premiums ranging from 0.1% to 0.3% of hull value. This doubled in the immediate onset, rising to 2.5% to 5% following vessel attacks. For a typical VLCC valued at $100 million-$150 million, this equates to $2.5 million-$7.5 million per voyage. For Medium Range tankers, Additional War Risk Premiums (AWRP) have reached $80,000-$120,000 for a seven-day period. By late March, premiums eased to between 0.8% and 1.5% as limited transits resumed, though they remain significantly higher than prewar levels.

As a result of surging costs, some shipowners have been forced to either idle their vessels or demand substantial rate increases. At the beginning of the conflict, this led to VLCC spot earnings spiking above $300,000 per day, with other segments—such as Suezmax, Aframax, and product tankers—also reaching record highs as exports from Saudi Arabia, the UAE, and Iraq came to a halt. The surge in rates for Middle East Gulf routes and the presence of trapped tonnage within the Gulf had an immediate ripple effect on Atlantic Basin routes, including US Gulf–China VLCC voyages. However, by mid-April, these rates had eased back to pre-crisis levels of around $99,000 per day.

Partial ceasefires allowing limited transits helped cool rates in late March and early April, but given the outlined limitations, more than 800 vessels remain stranded in the Middle East Gulf according to CAS data.

CAS clearance scenario modeling offers approximate number of days required for the roughly 800 laden vessels to exit the Strait. At a 50% traffic rate, or 68 daily vessel exits, the Middle East Gulf would be clear of laden tankers in roughly two weeks. A 10% clearance rate, or 14 vessels per day, eight-to-nine weeks would be required for full clearance. These assumptions are built around de-mining of shipping lanes, resurgence of shipper and insurer confidence, and cooperation between the US and Iran to adhere to safe, undisrupted flows through the Strait.

Confidence in the sustained reopening of the Strait has been severely undermined by a “stop-start” pattern of events. Multiple short-lived “open” windows—such as a sub-24-hour post-ceasefire period and a roughly 48-hour US-protected corridor—have been immediately followed by renewed attacks, creating a credibility gap. Even if a formal peace framework were to emerge, a “behavioral drag” from key maritime stakeholders would be expected to delay any return to normalcy. Shipowners, charterers and insurers are likely to adopt a cautious, wait-and-see approach. This means that vessel capacity utilization will likely remain capped as the industry hesitates to fully re-engage with the route until long-term stability is proven.

Through detailed consultation across crude oil, refined products, and shipping markets since the war’s onset, Platts has gathered extensive feedback outlining key factors for considering whether the Strait can be considered commercially reopened.

According to market feedback, in addition to a demonstrable sustained ceasefire, a reopening of the Strait of Hormuz should be defined by a series of factors, at a minimum: the restoration of functional, insurable, and sustained commercial maritime traffic under stable and commercially acceptable risk conditions.

1. Vessel traffic recovery

Market participants would need to converge around a minimum threshold of pre-war vessel traffic—reflecting both owned and chartered ships operated by a diverse set of international market participants, including oil majors, trading houses, and National Oil Companies—passing continually through the Strait for a sustained period. In the feedback received by Platts, market participants specified thresholds ranging from 50% to 90% of pre-war traffic, sustained for one week to up to one month. Meaningful recovery toward pre-war throughput is a critical indicator that confidence has returned across the supply chain, including charterers, shipowners, and cargo interests.

2. Observation period following ceasefire

Expectations shared indicate a minimum observation period following a declared ceasefire is required to verify that hostilities have genuinely ceased, that no intermittent disruptions persist, and that maritime traffic can return to normal without incident. In the feedback provided to Platts, indications for an observation period ranged from 30 to 45 days. During this period, stranded vessels should be able to exit safely, while vessels waiting outside should begin re-entering in a consistent and orderly manner.

3. Marine insurance availability

Marine insurance availability is considered a central determinant of normalcy. Feedback indicated that a broad pool of underwriters should be willing to provide war risk cover, not just a limited or highly selective group. Premiums may remain elevated relative to pre-conflict levels, but coverage should be accessible at commercially viable terms. A market with prohibitively expensive or limited coverage would not constitute normalization.

4. Physical security conditions

Physical security conditions should be demonstrably improved, including confirmation that naval mines or other navigational hazards have been cleared and that maritime security frameworks—such as naval patrols and convoy mechanisms, if applicable—function effectively to ensure safe passage, according to market feedback.

5. Fleet deployment patterns

Visible return of VLCCs and other large crude carriers into the Middle East Gulf, along with regular port calls and loading programs, would signal restored confidence among shipowners and charterers. The scale and frequency of such deployments should align with pre-conflict norms or show a clear trajectory toward them, market participants have told Platts.

From this extensive market feedback, a complex picture emerges regarding the conditions that should be met for the market at large to consider the Strait of Hormuz “open” for sustainable, consistent traffic. Conditions include sustained traffic flow, adequate insurance coverage, restored throughput levels, confirmed navigational safety, and normalized vessel deployment. Complex conditions will need to apply for one of the most important waterways to be fully operational again under stable and commercially acceptable conditions.