Hey, Planet Money newsletter subscribers. We were originally planning on publishing a story today about work requirements for Medicaid in the One Big Beautiful Bill. But a major geopolitical event happened over the weekend… So, we thought we'd pivot and briefly focus on that, based on our podcast episode also out today.
Following the U.S. strikes on Iran, the world’s eyes have shifted to a narrow waterway in the Middle East: the Strait of Hormuz.
About 100 miles long and just 24 miles wide at its narrowest point, the Strait of Hormuz is a vital passageway for oil and gas from the Persian Gulf. Roughly a quarter of the oil produced in the world and about a third of all liquified natural gas passes through it.
Why it matters now: Iran, which sits on the northern bank of the strait, has threatened to close it.
MARWAN NAAMANI/Getty Images
A new episode of The Indicator, Planet Money’s sister podcast, explores why the Strait of Hormuz has been such an important pressure point in geopolitics, and whether Iran could close it off and send global energy markets into turmoil.
The episode highlights how the maritime insurance industry was already focused on risks in the strait. Ships require insurance. And insurance companies calculate the risks they face. When risks escalate, insurance rates spike. We saw that happen even before the recent U.S. bombing in Iran. The maritime insurance market is sort of the perfect place to look at to get estimates of the possible economic disruption if the waterway were to slow or shut. An organization called the Joint War Committee, a group of representatives of insurance companies, issues frequent risk assessments on various seaways around the globe, making it an ideal indicator of threats to shipping in the Strait of Hormuz.
“Maritime insurance is indispensable,” Elizabeth Braw, a senior fellow at the Atlantic Council, told The Indicator. “For anybody trying to understand maritime threats, that is where the best knowledge resides simply because if you, as the insurer, or as the insurance industry, if you get it wrong, you will be paying a lot of money when one of the ships that you have insured is harmed in some way.”
In recent weeks, maritime insurance rates have been rising. Some ships are trying to spend less time near the Persian Gulf, and they’re generally taking other actions to reduce the risks of disruption.
So if you’re looking for a quick, ten-minute economic look at the Strait of Hormuz and how geopolitical tensions are rippling through energy and insurance markets, listen to the episode. It can be found here.
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