Emerging risks

In the current geopolitical environment, the conflict involving Iran presents risks that reverberate far beyond the immediate conflict between countries.

At the epicenter of those risks is the Strait of Hormuz, through which roughly one-fifth of the world’s seaborne petroleum and a significant share of liquefied natural gas transit each day. Any credible threat of Iranian constraint affecting access causes material issues for world trade and will likely force costly rerouting around the Cape of Good Hope. Even short-lived restrictions could trigger spot-market spikes in crude prices that cascade through downstream supply chains, elevating input costs for every day items used by consumers around the world.

Alongside physical volatility, U.S., EU, and allied sanctions regimes, which are already complex, are poised to tighten further even absent any military escalation. New or expanded primary sanctions can prohibit direct dealings with designated Iranian entities, but the more corrosive risk for multinational companies often lies in secondary sanctions, which threaten extraterritorial penalties for transacting with counterparties that have any nexus to Iran. Because sanctions lists evolve rapidly, an entity considered compliant today may become restricted tomorrow, forcing abrupt termination of longstanding supply relationships and exposing parties to breach of contract claims unless force majeure or sanctions compliance clauses are robustly drafted. Contractual frameworks demand careful attention. Parties should review and, where possible, renegotiate supply agreements to ensure that sanctions related issues are expressly recognized as force majeure triggers or as separate termination rights.

Financial market repercussions add yet another layer. Volatility in energy prices can feed through to foreign exchange fluctuations in currencies of oil-importing nations and hedging strategies that previously sufficed for routine price swings may prove inadequate in the face of conflict driven shocks.

The conflict also presents a very real cyber threat risk. Iran has in the past demonstrated capacity to deploy cyber activity against critical infrastructure targets. Digital systems can be compromised which could result in disruption to supply chains including shipping delays. An unanticipated cyber disruption at a single warehousing hub could paralyze regional distribution networks and produce ripple effects that persist even after systems are restored.

These are only a handful of the emerging risks that arise from the current conflict and businesses will need to identify and assess risks in the current geopolitical environment that may jeopardise an organisation’s success.

Insurance implications

Insurance implications extend beyond marine war-risk premiums and touch nearly every aspect of risk transfer in the supply chain.

• Marine insurers might re-classify the Strait of Hormuz and surrounding waters as a high-risk zone, resulting in sharply increased premiums, higher deductibles, and, in some cases, outright refusal to underwrite shipments transiting the area.
• Cargo insurers may impose conflict zone exclusions that limit payout for losses attributable to hostilities, terrorism, or government intervention, prompting the need for specialized coverage for war risk extensions or political violence. Companies must scrutinize policy wordings to ensure that perils such as confiscation, expropriation or forced abandonment are adequately addressed.
• Credit insurers, too, may tighten terms for buyers with any exposure to Iranian business or downstream customers in proximate jurisdictions, thereby constricting trade finance availability precisely when liquidity buffers are most needed to absorb cost volatility.
• Cyber-insurance should be analyzed for sufficiency relative to new threat scenarios, with particular attention to exclusions for state-sponsored acts.
• Insurers may also require more frequent reporting, enhanced due diligence on counterparties and stricter compliance with sanctions regimes as conditions of coverage.
• In the event of a claim, documentation requirements may become more onerous, and disputes over causation—whether a loss was due to a covered peril or an excluded act of war or terrorism—can delay or reduce payouts.

Companies should conduct a comprehensive review of their insurance portfolios, engage with brokers to identify potential coverage gaps and consider alternative risk-transfer mechanisms where insurance is not plugging the gap.

Companies that undertake proactive contractual adjustments, enhance due diligence protocols, diversify logistical channels, update insurance requirements and embed geopolitical risk into enterprise-wide resiliency planning are best positioned to weather the uncertainties that this further conflict is poised to generate in the global commercial landscape.