War risk, explained: how conflict adds to an Indian buyer's freight bill

October 2026 is the worst month on record for attacks on commercial shipping in and around the Strait of Hormuz. The Washington Institute for Near East Policy has recorded 28 confirmed and reported incidents this month⁵. The head of the International Maritime Organization (IMO) said about 6,000 seafarers remain trapped near the strait and urged ships not to transit until safe passage is guaranteed⁴. At the same time, container lines are moving back to the Suez Canal⁶.

For an Indian buyer, that is a two-sided risk picture, not a simple story about avoiding the Gulf. This explainer sets out how conflict risk becomes money on an invoice, from the ship's hull policy to the clause in your annual contract.

The premium is a percentage of the ship, not of your cargo

Shipowners buy hull and machinery cover for the vessel, and protection and indemnity (P&I) cover for liability to crew, cargo and third parties⁷. Ordinary marine policies exclude war³. Owners therefore buy separate war cover on top, and that is the cover insurers reprice when a strait turns dangerous⁸.

Extra war risk cover is quoted as a percentage of the ship's insured value for a single transit¹. Quotes for a Hormuz transit rose from 0.125% to between 0.2% and 0.4% of that value. That move came in the days before the US and Israeli strikes on Iran on 28 February 2026, according to figures recorded in the Wikipedia entry on the crisis¹. For a very large crude carrier, the same entry puts the increase at about a quarter of a million dollars¹.

So the formula a buyer should carry in mind is simple: premium equals the rate multiplied by the insured value, per transit. Quotes are set voyage by voyage and vary with the places the ship will visit⁸, which is why the range above is so wide.

A small move in a percentage becomes a large number because the base is a ship worth tens of millions of dollars. A very large crude carrier holds about 2 million barrels⁵. Freight from the Middle East Gulf to Asia now costs more than $37 a barrel. For one such cargo that is more than $74 million, against less than $15 million before the conflict, according to the International Energy Agency⁹. The IEA links that jump to a more complex, military-protected shipping system that keeps oil moving⁹.

Where the cost lands depends on your Incoterm. Under CIF and CFR, the seller pays carriage to the named port of destination. Under FOB, the buyer pays freight and insurance². The same premium therefore sits inside the seller's price on a CIF deal, and inside your own freight bill on an FOB deal.

Cover can vanish, and a ship can say no

When underwriters declare an area high risk, standard cover stops at its edge and transit cover has to be bought separately³. After the strait was declared a high-risk zone, P&I cover for the transit was withdrawn from 5 March 2026. That made the economic risk too high for many owners to use the waterway¹. The same declaration gave crews extra pay and the right to refuse the voyage¹.

That is why a signed contract does not guarantee a sailing. If the owner cannot obtain cover, or the crew declines, the ship stays where it is. The IMO's secretary-general made the same point when he asked operators not to transit until they had guarantees⁴.

Cargo insurance: the gap most buyers miss

Cargo policies written on the Institute Cargo Clauses exclude war. The standard exclusion covers war, civil war, revolution and rebellion, and "any hostile act by or against a belligerent power", along with capture, seizure and derelict weapons of war³. A buyer who reads "all risks" as covering everything will find the claim refused.

War damage needs separate war cargo cover, arranged alongside the main policy⁸. Who buys it depends on the Incoterm. Under CIF, the seller must arrange cargo insurance at a minimum level of Institute Cargo Clauses (C), and must pass the buyer documents that allow a claim². Under CFR, the seller pays freight but has no obligation to insure, so the buyer arranges cover². Under FOB, the buyer arranges freight and insurance².

There is one more trap. War cover can be cancelled at short notice if the cargo moves on a vessel not owned by the carrier named on the bill of lading¹⁰. Slot sharing and feeder swaps are routine, so check who owns the ship that actually carries your box.

Contracts: named ports, notices and force majeure

Incoterms name a port or place, and risk passes at a defined point². That name is a contract term, not a description. If insurers stop covering the named port, the ship may not be able to call there¹. So read the war risks clause in your charter party before you sign. It sets out what the owner may do, and who pays, if the route or the port becomes unsafe.

Sale and carriage contracts also carry a force majeure clause. Force majeure comes from the contract and the law that governs it, not from a general right. Such clauses usually suspend performance rather than cancel it, and war is often listed as a trigger¹¹. Whether a port closure or a carrier's refusal falls inside the clause depends on the drafting¹¹.

Two habits help. Read the notice duties in the clause before you need them, because a claim raised late is a claim at risk. And remember that force majeure does not settle a price. Work that is merely more expensive is not an impossibility¹¹.

What to ask before you sign

Ask the forwarder for a line-by-line quote: ocean freight, war risk surcharge, bunker and terminal charges. You cannot challenge what you cannot see.

Confirm that your cargo policy covers war, and read the territorial limits, which name the areas where cover stops.

Check routing and transshipment points. Colombo has a capacity of 7 million TEU and is a regional transshipment hub¹², and the cover can turn on who owns the ship that carries the box¹⁰.

Write a diversion clause and a war risk cost-sharing clause into annual contracts. Name a port range and a notice period, so that a re-routed vessel is a planned cost rather than a dispute.

Why the Gulf matters to Asian buyers, India included

Gulf cargo matters to India in several ways. In 2024, about 84% of crude and condensate moving through Hormuz went to Asian markets¹. The Gulf also supplies roughly 30% to 35% of global urea exports and 20% to 30% of ammonia exports¹. Up to 30% of internationally traded fertiliser normally passes through the strait¹. Gas carriers use the same waterway, which normally carries about 20% of the world's LNG¹.

The Red Sea problem and the Hormuz problem are priced differently. A Red Sea diversion adds distance, fuel and days, and carriers absorb it in freight rates. Gulf war risk adds a premium on each transit and can stop a sailing altogether. The two now overlap. Container shipping is returning to Suez while the Saudi-Houthi conflict widens⁶. Experts also expect the alternative ports and land corridors built during the war to stay available as a fallback¹³.

Common questions

Does a CIF price already include war risk?

It includes insurance, but only at the minimum the rule requires, and war is excluded from the standard clauses^2, 3. Ask for the policy and check for a war endorsement.

Who pays the extra war risk premium?

Follow the Incoterm. The seller pays carriage under CIF and CFR, the buyer pays freight and insurance under FOB².

Can a ship refuse to load my cargo?

Yes. If cover is withdrawn or the crew declines the voyage, the ship does not sail¹.

Is a war risk surcharge the same as higher freight?

No. Freight is the market price of the ship. The war risk premium is the price of insuring it, and both rose as the conflict went on^1, 9.

How fast do prices change?

Quotes can move in days. The February 2026 repricing happened before the first strikes¹.