Will Trump’s shipping insurance plan work?

NPR. This is The Indicator from Planet Money. I'm Darien Woods. And I'm Patty Hirsch. Right now, there's a traffic jam in the Persian Gulf. More than a thousand vessels are stuck floating in the warm sun kissed seas of Saudi Arabia, Bahrain, Dubai. Oil tankers, gas tankers, container ships, bulk goods carriers, they're all trapped to the west of what has become the world's most famous trade choke point, the Strait Of Hormuz. And there are a lot of reasons why these ships are stuck there, all related to the war with Iran. But one of the biggest of all is insurance. On today's show, we'll learn why the world's most boring financial product has turned into a trade terrorist, hijacking the market in oil, which this week briefly soared to over $100 a barrel. But don't worry. President Trump has a plan. We will look into a solution to open the strait and bring the price of oil back down after the break. Right now, Rachel Siemba says the Persian Gulf is a mess. I would describe it as a parking lot, as pathways that are are frozen. These are pathways that are normally bustling that now have very few vessels, going through. Rachel is a fellow at the Center for a New American Security, where she focuses on economics, finance, and security issues. She says vessels aren't moving because they're worried about being attacked or seized by Iranian forces, But that's not all. They're also facing much higher insurance costs, insurance premium for their political risk insurance. Political risk insurance, sometimes called war insurance. This is a special kind of insurance to cover stuff that regular shipping insurance policies generally don't, like being hit by a missile or detained by the Iranian navy. Yeah. Because it's special and usually supplemental. This kind of insurance isn't cheap. Maximilian Hess runs a political risk consultancy called Enmetana Advisory. He says right now, war insurance is getting eye wateringly expensive. Normally, rates for marine war insurance are in the basis points. Right? They're a percentage of a percent of the value, of a cargo. Here, we are very likely talking about double digit percentage points as a minimum. For example, about a week ago, a tanker carrying oil worth a $100,000,000 through the Strait Of Hormuz would have paid about $250,000 in war insurance. Today, it's at least a million bucks just for the day it takes to pass through the Strait. And most shipping companies don't wanna pony up that much, so they're staying put. Well, most of them anyway. And this has created a level of disruption in The Gulf and global energy markets not seen since the oil embargo of the nineteen seventies. It could end up being the worst the world has ever seen. That said, the strait isn't entirely closed. A small number of ships do risk transiting each day, but Rachel says many of those vessels aren't insured. Many of the vessels that are …