The mid-2020s are proving to be remarkably contentious with nationalist agendas coming to the fore, supervening established and accepted international law in several areas. For 2025, the Uppsala Conflict Data Program recorded 65 state-based conflicts in 35 countries plus 75 non-state conflicts of varying intensity.
As we have seen from the cycles of negotiation over the Strait of Hormuz, several nations consider it reasonable to charge for access to an international waterway when until February this year, it was accepted that the freedom of navigation or at least innocent passage should prevail. Should any of these proposed payment schemes come into operation there will be a number of legal questions to address, or not, depending on circumstances.
Under UNCLOS, any such payment would be illegal if it does not fall within the charges permitted under UNCLOS section 26. The precedent that such a charge could set is not something the world trading community has accepted in any detail but there are a number of regions where adjoining countries could consider it a good idea to take advantage of world shipping. Certainly, Indonesia made preliminary noises in this direction. The Iranian suggestion of levying 20% on cargo values looks unrealistic as most owners have no idea what ship their cargo is on and the ship has no idea who owns the cargo it carries, nor the value of it. However, ongoing talks are reported between Oman and Iran so there could be other ideas.
Years of rationalisation have honed the supply chain into a finely tuned machine and now friction is being introduced. The trading world is confronted by a system in flux. International trade will have to adapt and in some cases that will mean increased costs, as shown by Red Sea diversions, and in others it will mean looking for alternative supplies or doing without certain commodities. There are further complications caused by government policy straying into the financial services area through sanctions.
It is worth repeating that marine insurance is international, meaning that those who support trade have to comply with all of the applicable sanctions that are in operation internationally, not just those from its host country. Where those sanctions diverge or conflict, it generally means that the insurer in that case is unable to proceed with the business because it cannot reconcile two or more opposing points of view. The consequence is often that the business changes hands or continents and does not return.
This is not the desired outcome and can be avoided, but is often the result. The efficacy of sanctions has rarely been measured and when it has, they have not been found to have worked in the way envisaged. They certainly have an effect, most directly on the business of the country executing the sanction, whilst the target evades over time and the compliant host country insurers are left with the cost of compliance and no business in the particular area.
Naturally, clients want to trade in markets with which it is convenient and smooth to transact. If they perceive particular markets to have obstructive legislation and difficult compliance, they will gravitate to jurisdictions that do not have these features. Sanctions not only cause the trading entities of the original sanctioning country to disengage and lose the business, but to also lose the market position the business gave it in the first place.
Unfortunately, there are policy makers who appear to believe that numbers of sanctions alone form an objective, rather than what they have achieved. The use of sanctions has increased to such a degree that businesses now have to hire entire departments of sanctions compliance personnel. Such personnel do not generate income. They do not make things. All they can do is check legislation and guard against infringement. This has been called a profession, but it is hardly profitable and all practitioners will be familiar with the problem of due diligence and how much is enough.
As we saw during COVID, the supply chain is complex, interdependent and flexible, but that flexibility has limits. Â These are source, routeing and cost. When all of those become a problem, then prioritisation is needed over whether the product is a necessity or a luxury. By reducing demand to more essential goods, some trade will inevitably fall away. In the last 20 years, trade volumes have increased by a factor of roughly five and were confidently modelled to keep rising. But if numbers of countries cannot trade with each other freely, that model must be questioned.
The outlook for the rules-based order is continuing unsettled with more competition between states anticipated. Shipping and insurance will need to keep up with developments and stay agile in a volatile risk environment where frequency and severity go hand in hand with bear traps.
