Key takeaways
- War risk arising from the situation in the Strait of Hormuz has reached historic highs
- China’s neutrality is strategic and long-term
- Shipping exposure now includes political alignment risk
- Insurance and sanctions compliance are evolving rapidly
- The ceasefire does not remove underlying structural uncertainty
The US-Israeli coordinated strikes against Iran that began on 28 February 2026 have produced the largest energy supply disruption in recorded history. It has been widely reported that oil transport through the Strait of Hormuz, which normally carries roughly 20% of global oil supplies, has collapsed by over 97% (Nathan, Grimberg and Rhodes, 2026, p. 12). The conflict has sent Brent crude above $100/bbl, forced the activation of strategic petroleum reserves across IEA member states, and triggered a cascade of war risk reassessments across the global shipping industry. Although a ceasefire was announced in early April for two weeks, it appears fragile, and at the time of writing it does not materially alter the underlying commercial, insurance, and legal uncertainties affecting maritime trade in the region.
The subsequent U.S. targeted naval blockade of vessels entering or exiting Iranian ports and coastal areas (implemented from approximately 13 April) has further constrained traffic through the Strait of Hormuz. President Trump’s statements on 15 April 2026, describing the war as “close to over” and suggesting that extending the ceasefire may not be necessary, appear to have spurred a market rally and injected cautious optimism. Nevertheless, these developments do not yet materially alter the underlying commercial, insurance, and legal uncertainties affecting maritime trade in the region. For shipowners, charterers, traders and insurers, the issue is no longer merely geopolitical. It now directly affects war risk premiums, contractual performance, sanctions exposure, route planning, and the allocation of delay and additional costs.
Public statements from Beijing have been stridently against the offensive, urging an immediate stop to military operations and calling for deescalation and a return to stability in the region. However, China has stopped short of any confrontational positioning at sea and has not publicly offered naval support to Iran in exchange for free passage. For the world’s largest oil importer, a nation that sources approximately half its crude and 30% of its LNG from Persian Gulf suppliers (García-Herrero, 2026, p. 2), this restraint is notable, though not unexpected given what is at stake. It is worthy of closer consideration, especially for those in the maritime sector who are now having to cope with the most volatile war risk environment since the Tanker Wars of the 1980s.
China’s Exposure, and Its Buffers
China’s vulnerability to disruptions in the Strait of Hormuz is enormous. Prior to the conflict, an estimated 5.4 million barrels per day of oil transited the Strait bound for Chinese ports, alongside substantial LNG volumes from Qatar (García-Herrero, 2026, p. 2). Iran alone supplied China with approximately 1.4 million barrels per day, around 13% of total crude imports, at discounted prices secured under the 25-year China-Iran Comprehensive Strategic Partnership signed in 2021 (García-Herrero, 2026, p. 1).
That supply has now effectively vanished. Iranian production and export infrastructure has been severely degraded, and independent “teapot” refineries like those in Shandong province that process the bulk of this discounted Iranian crude have lost access to their primary feedstock.
Beijing was not entirely unprepared, however. In the first two months of 2026, Chinese oil imports surged 16% as stockpiling accelerated (García-Herrero, 2026, p. 2). This was a clear signal that intelligence assessments in Beijing had anticipated the escalation. Strategic and commercial petroleum reserves are estimated at 1.3 to 1.4 billion barrels, providing approximately four months of import cover. Russia has also increased seaborne deliveries, though pipeline capacity was already near its limits, and Moscow’s own export flexibility is constrained by a shortage of available tankers.
China’s posture in this conflict extends well beyond energy security. Its relationship with Iran sits at the highest tier of Chinese partnership diplomacy, the same “Comprehensive Strategic Partnership” level afforded to Saudi Arabia and the UAE (Elveren, 2024, p. 3). This status reflects decades of carefully calibrated engagement. Since 2019, China, Russia, and Iran have conducted trilateral naval exercises in the Gulf of Oman. The most recent, “Security Bond 2024,” focused on joint maritime security operations in waters immediately adjacent to the current conflict zone.
What makes China’s current position so strategically significant is the potential for an “intelligence dividend”. As the Brussels-based think tank, Bruegel, has observed, a protracted US military engagement in the Persian Gulf allows Beijing to observe American naval operations, weapons systems, and force projection capabilities in real time (García-Herrero, 2026, pp. 5–6). This is intelligence of considerable value should tensions around the Taiwan Strait escalate in the future. The conflict also diverts substantial US naval assets away from the Indo-Pacific theatre, thereby easing a strategic constraint on Chinese ambitions in the South China Sea.
It might be a stretch to suggest too strongly that China is a strategic beneficiary of the war. The conflict degrades Iranian military capability, which China cannot prevent. But it also strains US resources, and generates valuable intelligence, all while allowing Beijing to maintain a degree of plausible diplomatic neutrality.
Implications for War Risk and Maritime Law
What Interwits is monitoring closely is the implications of all of this for shipowners, insurers, and charterers. War risk premiums for Persian Gulf transits have reached levels not seen since the Iran-Iraq War. Hull war risk policies typically exclude losses arising from war, but the activation of such exclusions depends on whether the vessel’s trading area falls within a “Joint War Committee Listed Area”. The entire Persian Gulf, Strait of Hormuz, and Gulf of Oman were added to the listed areas within days of the first strikes, triggering additional premium requirements that have effectively priced many commercial transits out of viability. Even if the ceasefire holds in the immediate term, underwriters and commercial parties are unlikely to treat the risk environment as normalised for some time.
Convoy operations, now being organised by a coalition of Western naval forces, introduce their own legal complexities. Speaking to Goldman Sachs, Vice Admiral Kevin Donegan, former Commander of the US Navy’s Fifth Fleet, believes that convoys could at best restore 20% of normal oil trade volume through the Strait (Nathan, Grimberg and Rhodes, 2026, p. 11). This highlights a gap between Western military capability in the region and commercial capacity. For vessels joining naval convoys, questions are likely to arise around deviation clauses in charterparties, whether convoy compliance constitutes a “reasonable” deviation under the Hague-Visby Rules, and how delay costs should be allocated between owners and charterers.
Another complicating factor is whether Chinese-flagged and Chinese-linked vessels are able to transit the Strait or not. Ambassador Dennis Ross, a veteran US Middle East Envoy, has identified China as one of the few actors capable of pressuring Iran to relinquish its chokehold on the Strait, particularly if the US moves to block Iranian oil exports entirely (Nathan, Grimberg and Rhodes, 2026, p. 7). However, following the U.S. imposition of a targeted naval blockade on Iranian ports, reports confirm that at least one major U.S.-sanctioned Chinese-owned tanker successfully transited the Strait of Hormuz. Furthermore, Beijing has publicly described the U.S. action as “dangerous and irresponsible” and has urged de-escalation, while simultaneously reminding Washington of its long-standing trade agreements with Iran and stating that it expects these arrangements and the passage of Chinese vessels not to be interrupted.
Earlier conflicting reports suggested that Iran may have selectively restricted or permitted Chinese-linked traffic in an effort to draw Beijing into a more active role. If this pattern of flag-state or beneficial-owner-based selectivity persists, it could present an unusual challenge for war risk underwriters, as a vessel’s exposure would depend not only on its route or cargo but on its political affiliations with the belligerent parties; a risk factor the market has not previously had to price at this scale.
Sanctions compliance adds a further layer of difficulty. The US Treasury’s recent waiver on Russian crude loaded prior to 12 March, along with potential waivers on Iranian oil currently on the water (Nathan, Grimberg and Rhodes, 2026, p. 8), create a moving target for compliance departments. Vessels that previously carried sanctioned Iranian crude to Chinese ports under sanctions-evasion arrangements, often involving ship-to-ship transfers and AIS manipulation (García-Herrero, 2026, p. 1), now face heightened scrutiny as enforcement postures change with the conflict.
A Longer View
The announcement of a two-week ceasefire, combined with President Trump’s statements on 15 April 2026 that the war is “close to over” and that extending the ceasefire may not be necessary, has reduced the immediate temperature of the crisis and spurred a market rally (Bloomberg, 15 April 2026). China has reacted to the U.S. blockade by calling for de-escalation while emphasising its existing trade agreements with Iran and its expectation that Chinese energy shipments will continue uninterrupted. These developments mark a potential turning point. However, the ceasefire remains fragile and questions persist over access to the Strait of Hormuz. The structural uncertainty that has entered the market has not yet been removed. So long as the status of the Strait remains contested, parties trading in or near the Persian Gulf should proceed on the basis that disruption, delay, renewed hostilities, and rapid changes in compliance expectations remain realistic possibilities.
The conflict’s eventual resolution is unlikely to restore normal commercial shipping overnight. As Admiral Donegan also noted in his Goldman Sachs address, recovering trust in the safety of vessels transiting the Strait will take time. Insurance markets, having repriced risk upward, may be slow to reverse course. The damage to Qatari LNG infrastructure alone, which Qatar Energy’s CEO has estimated will reduce production capacity for two to three years, represents a longer-term impediment to the global energy market that will potentially need to be absorbed long after the last missile is fired.
So far, China’s calculations on Iran appear to be measured and pragmatic overall. Beijing needs Gulf energy supplies, but it also needs the leverage that comes from being the indispensable economic partner to a sanctioned Iran, a credible mediator between Riyadh and Tehran, and an increasingly serious alternative to US-led regional security arrangements. The 2023 China-brokered Saudi-Iran rapprochement demonstrated this ambition, but the current conflict is testing whether Beijing can sustain it.
Maritime stakeholders should be watching Chinese diplomacy closely. The moment China moves from being an observer to an active participant in mediation may well mark the conflict’s turning point.
Until a concrete solution is reached, the war risk environment remains volatile. Those operating in or near the Persian Gulf should ensure their contractual protections, insurance arrangements, and sanctions compliance frameworks are fit for purpose in a conflict environment in which rapid normalisation cannot be assumed. Parties exposed to Persian Gulf trading should also review war risk clauses, sanctions warranties, liberty and deviation wording, insurance notification obligations, and charterparty mechanism for allocating delay, additional insurance costs, and refusal to transit. In the present environment, legal exposure may evolve more quickly than the underlying facts at sea.
As Interwits’ earlier article on war risk escalation and charterparty termination in the context of the Russia-Ukraine conflict likewise illustrated, these situations often raise not only insurance issues, but also difficult questions of contractual allocation, timing, and commercial judgment. Interwits continues to monitor these developments and advise on the legal and practical implications for maritime and international trade stakeholders.
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