Trump seeks to ease tensions in energy markets: US to insure tankers and escort them through the Strait of Hormuz

The ongoing conflict in the Middle East has caused a significant price shock on global energy markets. Disruptions to energy supplies from the Persian Gulf since the start of the week have driven oil prices and, in particular, natural gas prices to multi-year highs. The reason is the interruption of oil and liquefied natural gas shipments through the Strait of Hormuz. US President Donald Trump therefore intends to arrange insurance and, if necessary, military protection for oil tankers in a bid to stabilise the market.

The Persian Gulf is a key region for global energy markets. Significant volumes of oil and liquefied natural gas (LNG) originate there, accounting for roughly one-fifth of global supply. However, following the recent escalation, including US and Israeli strikes on Iran and Iranian retaliation against targets in neighbouring countries, oil and LNG shipments through the strategically important Strait of Hormuz have come to a halt.

From the perspective of energy markets, the European gas market has been hit hardest, with prices exceeding 60 EUR/MWh at times on Tuesday. This is roughly double the level seen last week. Oil prices have also risen sharply, however, causing concern in many countries around the world. Oil prices are often a key issue in US elections, and elections to the US Congress are due to take place this autumn.

According to Reuters, US President Donald Trump yesterday ordered the US government’s International Development Finance Corporation (DFC) to provide insurance and financial guarantees for tankers in the Persian Gulf. Since the strikes on Iran began, private companies have suspended insurance for vessels in the area because of the high risks. Without insurance, sailing in the waters of the Persian Gulf poses too great a risk for tanker operators.

Trump also said the US Navy could begin escorting oil tankers through the Strait of Hormuz. However, tanker operators and analysts are unsure whether these measures will help calm the market, Reuters reported. Trump said further steps would follow.