Iran introduces cryptocurrency-based ship insurance for the Strait of Hormuz

Need for fees stems from damage to infrastructure caused by military strikes

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Iran has announced a new initiative aimed at offering ship insurance for vessels passing through the Strait of Hormuz, a crucial maritime chokepoint through which 20% of the world’s oil and gas supplies are transported, according to Al Jazeera. The move comes amid growing global concern over Iran’s attempts to exert control over this strategic waterway.

The proposal involves a system whereby ships passing through the strait and surrounding waters can obtain insurance cover with payments made in cryptocurrencies, potentially generating substantial revenue for Iran. Although it is presented as a commercial risk management service, many shipping companies see it as a thinly veiled attempt to impose transit fees, despite the fact that international law prohibits such charges on ships passing through international straits.

Iran claims that the need for these fees stems from damage to its infrastructure as a result of recent military actions. Experts, however, point to various obstacles that stand in the way of the feasibility of the insurance scheme.

First, Iran faces significant financial and legal challenges in setting up a credible insurance system because of existing sanctions that limit access to global financial markets and reinsurance support.

Second, the reliance on cryptocurrency payments raises concerns about sanctions evasion, money laundering and cyber security risks. Finally, the US naval blockade of Iranian ports complicates matters further, potentially preventing insured ships from sailing on even if Iran grants them passage.

While some countries wary of Western sanctions might consider this option to save costs or secure passage, most maritime powers and shipping companies are unlikely to agree to it because of trust issues, a lack of enforceability and the absence of internationally recognised legal standards. The success of the initiative remains uncertain, as it faces significant practical and geopolitical hurdles.

Business AM

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