Iranian Drone Strike on Kuwaiti Tanker Pushes Crude to $106 as Insurance Market Seizes
Direct state attack on fully laden VLCC off Dubai marks escalation from proxy warfare to explicit targeting of commercial energy infrastructure, while war risk premiums surge 300% and underwriters withdraw from Strait of Hormuz coverage entirely.
An Iranian drone strike on the Kuwaiti-flagged oil tanker Al-Salmi at 12:10 am Tuesday sent crude prices spiking 2.9% to $105.91 per barrel and underscored the systematic collapse of maritime insurance markets that now pose a greater threat to Persian Gulf energy flows than military action itself.
The attack on the fully laden very large crude carrier off Dubai Port represents Iran’s first confirmed direct strike on a major-flag commercial vessel in international waters since the Strait of Hormuz crisis began 28 February, according to Gulf News. The vessel sustained hull damage and fire, with all 24 crew evacuated safely. Kuwait Petroleum Corporation warned of a potential oil spill but did not quantify the damage.
The Al-Salmi strike follows Iran’s effective blockade of the Strait of Hormuz since 2 March, which has stranded approximately 15 million barrels per day in the Persian Gulf — roughly 20% of global oil supply. Nearly 500 tankers remain immobilised, per CBS News reporting from mid-March, though only five vessels departed in the preceding 24-hour period at that time.
Insurance Market Becomes Binding Constraint
The proximate driver of market paralysis is no longer Iranian military capability but the wholesale collapse of war risk insurance coverage. All 12 members of the International Group of P&I Clubs — covering 90% of global ocean-going tonnage — issued 72-hour cancellation notices for war cover in the Gulf in early March, according to S&P Global.
War risk insurance premiums for Strait transits have surged 300% versus January 2025 levels, with VLCC war risk jumping from approximately $100,000 to over $400,000 per transit, per The Middle East Insider. Seven-day premiums are now quoted at 1% of vessel hull value, compared to 0.25% pre-conflict — meaning a single week’s insurance can exceed an entire year’s peacetime premium.
“If you went to the hull market right now and said: ‘I’ve got a tanker going through the Strait of Hormuz,’ I think there is a possibility that you would struggle to find underwriters looking to write that.”
— David Smith, Head of Marine, McGill & Partners
The insurance market’s withdrawal has created what amounts to an economic blockade independent of Iran’s military posture. Daily VLCC charter rates have quadrupled to nearly $800,000, while container shipping lines including Maersk, CMA CGM, and Hapag-Lloyd have suspended transits entirely and diverted around the Cape of Good Hope — adding weeks to transit times.
Escalation Pattern Intensifies
Tuesday’s strike represents a qualitative shift from proxy-affiliated harassment to direct state attacks on commercial infrastructure. At least 32 maritime incidents have been recorded since the conflict began, including 22 commercial vessels and 10 offshore infrastructure assets attacked or involved in near-miss incidents, according to Windward Maritime Intelligence.
Iran’s Supreme Leader Ayatollah Mojtaba Khamenei has signaled continued use of the Strait blockade as leverage, stating in a message read on state media that “the leverage of blocking the Strait of Hormuz must certainly continue to be used,” per ABC News.
Geopolitical Risk Premium Reaches $14 Per Barrel
Brent crude surged 55% in March — the highest monthly gain on record since the contract’s 1988 inception — while US WTI gained 53%, according to CNBC. Analysts estimate Iran’s closure of the Strait has created an $8-14 per barrel geopolitical risk premium, suggesting Brent would trade at $74-80 under normal conditions.
The Strait of Hormuz carries approximately 20 million barrels per day under normal conditions — roughly one-fifth of global oil consumption. Iran’s 1980s “Tanker War” during its conflict with Iraq saw attacks on 451 vessels over eight years, but never achieved the systematic closure now in effect. The current insurance market collapse represents a novel constraint: economic paralysis driven by underwriting withdrawal rather than direct military interdiction.
The pricing dynamic reflects both physical supply disruption and the insurance-driven operational freeze. Shipowners cannot operate economically at 1% weekly insurance costs, even if they could secure coverage. “No shipowner wants to put either his asset, and more importantly his crew, in danger,” David Smith of McGill & Partners told S&P Global.
What to Watch
The insurance market’s restoration will be the leading indicator of Strait normalisation, not military developments. Underwriters require either a visible US-led or multinational naval escort presence, or a ceasefire agreement that credibly ends attacks, according to Marcus Baker, global head of marine at Marsh, per Al Jazeera.
Trump administration threats on Iranian energy infrastructure — extended to an April 7 deadline as of 30 March — could trigger further Iranian retaliation and insurance market deterioration. Iranian officials have warned oil could reach $200 per barrel if regional security continues to deteriorate. The current attack on a Kuwaiti-flagged vessel in UAE territorial waters suggests Iran is testing Gulf state tolerance and expanding target parameters beyond Western-aligned shipping.
Tanker operators are watching whether underwriters will return to the market at any price, or whether the Gulf remains effectively uninsurable until military tensions resolve. The 300% premium increase may prove conservative if direct state attacks on commercial infrastructure become routine rather than exceptional.