War, Oil Prices And Insurance--How The Real World Works

From Hot Air: "Price of Oil Has Dropped Like a Rock, Democrats Hardest Hit." Although Democrats have pushed for decades to increase the price of oil and gasoline, they couldn't resist attacking Trump when oil prices crept up to prices you would normally only see under a Democrat controlled Administration. But in a lesson of how the real world works:

The spike in oil prices was driven by a decision made by Lloyd's of London to cancel war insurance for tankers that had to cross through the Strait of Hormuz. Iran had threatened to shut the Strait down, but has not been able to do so, so Lloyd's had to step in to give them a hand.     

However, that description is not quite accurate. Lloyd's is not an insurance company, but an insurance market (sort of like a stock market) where members (companies and private individuals, called "names") form syndicates offering specific types of insurance and/or reinsurance to insurance buyer's including for risks not normally covered by traditional insurers. This includes maritime insurance. (And this is nothing new--there is evidence of insurance on shipping going back to the classical period). So it was not Lloyd's per se that was refusing to insure ships, but the members of Lloyd's. 

    Lloyd's members are immensely wealthy and can exert substantial influence. For instance, one of the reasons that the U.S. "won" the war of 1812 was because American privateers were capturing or sinking so much of Britain's shipping that Lloyd's (i.e., the wealthy members of Lloyd's) was screaming at Parliament and the King to end the war.    

    But back to this story. Whether out of malice or risk aversion, the Lloyd's members that would normally insure the oil tankers refused to provide coverage for the vessels using the Strait of Hormuz, which essentially shut down oil transportation through the straits. Trump sidestepped this issue by ordering the U.S. Development Finance Corporation (DFC) to provide political risk insurance and financial guarantees for maritime shippers in that region, and indicated that the U.S. Navy would begin escorting ships through the Straight of Hormuz. And, thus, the Lloyd's blockade was lifted.  

    The article also notes that Saudi Arabia had been planning for this type of contingency, constructing an east-west pipeline across the peninsula in order to bypass Iranian attempts to shut down the Straits. It currently transports 1 million barrels of oil a day to a port on the Red Sea, but the Saudi government is working on ramping capacity up to 7 million barrels per day. 

More:   

• "US destroys Iranian navy vessels — including 16 minelayers — near Strait of Hormuz"--New York Post.
• "Three vessels struck in Strait of Hormuz as Iran vows to launch its ‘most intense’ assault so far"--New York Post.
• "US has destroyed entire class of Iranian warships, CENTCOM commander says"--Army Times. 
• "Is The US Considering Seizing Iran's Kharg Island?"--Radio Free Europe.  
• "Why the Iran war may come down to the control of one tiny island"--New York Post.