The U.S. says it has struck a new agreement to provide up to US$20 billion in reinsurance coverage to “restore confidence in maritime trade” amid the Iran war in the volatile Gulf Region.
This comes days after Iran effectively closed the Strait of Hormuz by threatening virtually all ships that try to pass through the narrow choke point between the Persian and Oman gulfs, which sees about 20 per cent of the world’s oil, and other crucial goods, passing through.
On Friday, the U.S. International Development Finance Corporation (DFC), along with U.S. Treasury Secretary Scott Bessent, announced an agreement approved by U.S. President Donald Trump to deploy what it calls “Maritime Reinsurance” in the Gulf region, according to a statement.
Trump said on Tuesday that he was moving to provide financial insurance along with possible military support for maritime trade.
The DFC adds that this agreement includes “war risk.”
“I am grateful to President Trump and Secretary Bessent for their support and approval of DFC’s plan to restore confidence in maritime trade and stabilize international markets,” DFC CEO Ben Black said in the statement.
“We are confident that our reinsurance plan will get oil, gasoline, LNG [liquefied natural gas], jet fuel, and fertilizer through the Strait of Hormuz and flowing again to the world.”
Shortly after the conflict began, many insurance companies raised their policy rates for businesses because of the risk in the region amid the conflict. If rates get too high, those businesses may cancel their plans because they can’t afford the necessary insurance coverage.
Reinsurance is essentially insurance for the insurance providers.
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Where insurance is between an insurer and an individual/business with a policy, reinsurance acts as a backer or guarantor to those insurance providing companies.
This means that by providing reinsurance to these insurance companies, they may be less inclined to raise rates for their clients.
The statement says this agreement will “help stabilize international commerce, and support American and allied businesses operating in the Middle East during the conflict with Iran.”
The price of crude oil has skyrocketed since the Iran war began last weekend as concerns mount that global oil supplies could run dry the longer the conflict goes on.
Oil was over $90 per barrel as of publication, compared with around $64 a week earlier.
Higher oil prices often lead to higher prices for consumers at gas pumps, and can even lead to inflation spikes as businesses spend more to ship goods and pass those costs onto consumers.
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