Maritime observers have been nervously monitoring the increasing tensions between the USA and Iran in the Strait of Hormuz. In recent weeks, Iran has seized two vessels in retaliation following the US’ seizure of an Iranian-flagged tanker.

The Strait of Hormuz is one of the world's key shipping lanes, with an estimated trade flow of US$ 685 billion. According to Russell Group's analysis, the Strait is a key exporting channel for many Gulf-producing nations, with an estimated US$ 227 billion of crude oil exports flowing through it. An incident in the Strait of Hormuz can be regarded as a Connected Risk, which Russell defines as an event where a combination of multiple risk drivers such as political, economic and supply chain can create a large loss.

In this scenario, a surge in US and Iran tensions would lead to an Iranian trade blockade, threatening all exports, including crude oil. This threatens to submerge the global economy, as nations like China and India rely on crude oil exports from Gulf nations.

Similarly, companies’ balance sheets could be holed below the waterline if key imports are delayed, which would, in turn, impact (re)insurers insuring those companies on their portfolios.

In these choppy times, it can be challenging for (re)insurers to monitor and know their potential portfolio exposures. However, to truly build resilience, (re)insurers can run scenarios to understand connected exposure better and pre-empt any potential impacts to their portfolio.

Such insights and knowledge will enable (re)insurers to embed resilience within their portfolios and, in so doing, help to navigate a safe passage through these storm-driven uncertain times.