The Trump administration on Friday announced a $20 billion reinsurance program for oil tankers and other maritime traffic in an effort to get vessels moving through the Strait of Hormuz.
U.S. crude oil prices have surged more than 12% Friday, toppping $90 per barrel as tanker traffic in the Persian Gulf remains at a standstill due to the Iran war. Some Gulf countries have started cutting production because they cannot export their crude through the Strait.
The U.S. InternationalDevelopment Finance Corporationwill insure losses up to $20 billion on a rolling basis. The DFC and Treasury Department said they are closely cooperating with U.S. Central Command to implement the plan.
"We are confident that our reinsurance plan will get oil, gasoline, LNG, jet fuel, and fertilizer through the Strait of Hormuz and flowing again to the world," DFC CEO Ben Black said in a statement.
The Strait is the most important chokepoint for crude oil in the world, with about 20% of global consumption exported through the narrow waterway. About 20% liquefied natural gas exports worldwide also pass through the strait.
President Donald Trump said Tuesday that the U.S. would offer insurance to commercial vessels in the Persian Gulf and U.S. Navy escorts if necessary. Several oil tankers have come under attack since the U.S. and Israel launched a massive wave of airstrikes against Iran last weekend.
Insurance is not the main problem for ship owners right now, said Matt Wright, senior freight analyst at consulting firm Kpler. Tankers are not moving through the Strait because they are worried about their physical security, Wright said.
"There needs to be some confidence that Iran's ability to continue to wage war has diminished," Wright told CNBC.
Source: Drudge Report
