The US says it has struck a new deal to provide US$20 billion in reinsurance cover to “restore confidence in maritime trade” amid a war with Iran in the volatile Gulf region.
It comes days after Iran effectively closed the Strait of Hormuz, threatening all ships trying to pass through the narrow choke point between the Persian and Oman Gulfs, through which 20 percent of the world’s oil and other critical goods pass.
On Friday, the US International Development Finance Corporation (DFC), along with US Treasury Secretary Scott Besant, announced an agreement approved by US President Donald Trump to deploy what he calls “maritime reinsurance” in the Gulf region.
Trump said on Tuesday that he was moving to provide financial insurance with potential military support for maritime trade.
The DFC adds that the deal involves “the risk of war”.
“I am grateful to President Trump and Secretary Besant for their support and endorsement of DFC’s plan to restore confidence in maritime trade and stabilize international markets,” DFC CEO Ben Block said in a 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 back into the world.”
Shortly after the conflict began, many insurance companies increased their policy rates for businesses due to the risk in the region amid the conflict. If the rates become too high, those businesses may cancel their plans because they cannot afford the necessary insurance coverage.
Reinsurance is essentially insurance for insurance providers.
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If there is insurance between the insurer and an individual/business, the reinsurance acts as a backer or guarantee for the companies providing that insurance.
This means that by providing reinsurance to these insurance companies, they may be less inclined to raise rates for their customers.
The agreement will “help stabilize international commerce and support American and allied businesses operating in the Middle East during the conflict with Iran,” the statement said.
Crude oil prices have soared since the start of the Iran war last weekend, as concerns grow that global oil supplies could dry up as the conflict drags on.
Oil was above $90 per barrel, according to the release, compared to around $64 a week ago.
Higher oil prices generally lead to higher prices for consumers at the gas pumps, and can lead to rising inflation as businesses spend more to transport goods and pass that cost on to consumers.
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(tags to translate)Iran(T)Oil(T)Strait of Hormuz(T)US News(T)World
