Insurance implications of developments in the Middle East

June 2026 | SPOTLIGHT | RISK MANAGEMENT

Financier Worldwide Magazine

June 2026 Issue

Recent developments in the Middle East have refocused attention on insurance as a tool to respond to and manage geopolitical risk, particularly where physical assets are deployed in, or transit through, areas subject to hostilities.

For insurers, insureds and those financing assets in the region, the issue is not simply the elevated risks that losses may arise, but how those losses or their causes will be characterised which directly bears on whether they will be covered, and whether other constraints such as sanctions or other compliance issues will limit ongoing capacity or risk appetite of insurers, or otherwise present barriers to the provision of cover and payment of claims.

This article explores a number of themes pertaining to insurance in light of the current conflict, with a particular focus on transportation risks. These include the availability and scope of terrorism, political violence and political risk cover, the insurance implications for assets operating in or transiting high‑risk zones such as the Strait of Hormuz, and the growing importance – and complexity – of sanctions compliance.

Assets in high risk zones

From a marine perspective, the Strait of Hormuz remains a focal point for operational risk (with the Strait having been shut and reopened on several occasions. Disruption to shipping in the region, whether arising from armed conflict or state action, raises immediate questions as to the insurance response.

Standard marine hull, cargo and liability policies typically exclude war risks, meaning that insureds will need take out separate war risks cover for protection against losses arising from events relating to the conflict. While war risks cover is widely available, it is commonly written on terms that allow insurers to manage unexpected changes to their exposure, including permitting cancellation on short notice.

In periods of heightened tension, this may be accompanied by the reoffering of cover on different terms, including increased premiums, reduced limits, higher retentions and additional exclusions. Similarly, calls to ports in regions deemed to be a war risk may also need to be declared on a shipment-by-shipment basis which gives insurers the ability to tailor their terms to the changing risk profile.

For owners and operators, this can affect their execution risk and profitability around arrangements entered into prior to the onset of hostilities, and can impair the successful completion of contracts that are often premised on the availability and continuity of insurance cover.

In parallel, the conflict has also led to disruption across supply chains, with significant volumes of cargo delayed or held in transit as operators divert routes away from areas thought to present the highest risk. These diversions and delays give rise to substantial additional costs for fuel and crew, and add additional days to a charter.

However, an important limitation of many marine covers is that they are typically only engaged in response to physical loss or damage. Absent loss or damage to a vessel or cargo, losses of a consequential or purely economic nature – such as those extra costs incurred in their diversion – will generally fall outside cover.

As a result, disputes are likely to arise as to whether preventative measures such as rerouting or delay can be said to arise from an ‘imminent’ threat of physical loss or damage, such that associated costs of mitigating that threat are recoverable. In practice, many such claims can be challenging, and may turn on fine factual distinctions such as the precise location, the nature of the cargo or the exact preventative measures adopted.

Even where insurance cover is provided for vessels transiting through the Strait of Hormuz, complex compliance questions can arise considering the particular transit options available. Iranian authorities have mooted setting up shipping lanes in Iranian territorial waters potentially with the payment of a toll.

Travelling through Iranian territorial waters creates compliance issues under US sanctions and toll payments are likely to involve entities that are sanctioned under US, European Union and UK law, as well as giving rise to considerations under applicable terrorism financing laws. Although the Strait is presently ‘closed’, vessel operators and their insurers will need to carefully assess how (if at all) they can transit the Strait in compliance with those laws as and when it does reopen.

For aviation, the issues are similar, but not identical. Aircraft operating in the Middle East may face elevated risk of damage or operational disruption. In principle, aviation war insurance contracts contain similar mechanisms enabling insurers to respond to changes in the risk environment, including rights to cancel cover on short notice and, where appropriate, amend terms.

In that context, with fleets initially being grounded, questions arose as to whether aircraft grounded in the region could be characterised as already having been exposed to an ongoing insured peril. With affected airlines having subsequently been able to re-establish some level of operation or ability to reposition their assets, this would seem less likely, but whether or not assets can be said to fall within that category will be highly fact-sensitive.

Finally, the nature of the threats arising in the context of the Iran‑related conflict also has the potential to raise difficult questions as to the boundary between all‑risks and war risks cover. Care is required to avoid coverage gaps where an all‑risks policy excludes losses arising from war or hostile acts, while the war risks policy does not clearly respond to the particular factual scenario in question.

Terrorism, political violence and political risks insurance

One of the most significant insurance issues arising from instability in the Middle East is how loss sustained is classified. Whether damage or disruption is attributed to ‘war’, ‘political violence’, ‘terrorism’ or an event which could straddle such categories, can determine whether an insurance policy responds at all.

Many insureds in the Middle East have typically purchased narrower terrorism cover – which is designed to cover isolated, illegal acts of violence motivated by political, religious or ideological purposes, and almost universally exclude losses arising from ‘war’, ‘hostilities’ or ‘military action’ – on the basis that this was perceived to be the predominant risk in that region. However, the broader events in the Middle East are likely to be classified as events of war or political violence.

That said, while much will again turn on the wording of the precise policy set against the specific facts giving rise to the loss sought to be recovered, in the Middle East context, where armed groups, state forces or quasi‑governmental entities may operate in close proximity and with overlapping objectives, the line between terrorist activities and wars can be blurred.

The growing significance of PRI and PV cover

Against this backdrop, political risk insurance (PRI) and political violence (PV) insurance assume increased importance for assets and investments exposed to the region.

PRI typically responds to losses arising from political acts, including expropriation, nationalisation, deprivation of assets, and certain forms of currency inconvertibility or political interference with contractual rights. PV cover typically covers losses from war, civil war, insurrection, rebellion, revolution and related perils.

Against the context of a campaign by Iran which has involved targeting civilian assets, including hotels and airports, this cover may be critical in the context of infrastructure and immovable assets. However, these products are not uniform and coverage is highly dependent on precise drafting, definitions and exclusions. In the current environment, careful scrutiny of policy wording is essential if PRI or PV cover is to function as an effective risk transfer mechanism.

Conclusion

A persistent feature of the current Middle East situation is the speed with which conditions change. The changing strategic and threat environment can create challenges for insureds seeking certainty on coverage, and compliance risk (including the potential for sanctions and terrorism financing laws to become engaged in particular fact patterns) can complicate these questions even further.

For assets operating in the region, the key issues are not limited to the existence of physical risk, but how losses are caused, whether policy cover responds as expected, and whether compliance laws constrain underwriting capacity or claims payments.

For those financing such assets, understanding the nuances of insurance response across war and terrorism, PRI and PV cover is critical to ensure that supporting insurance continues to respond to the financier’s interest in the asset. When structured and managed carefully, insurance continues to play a central role in enabling assets to operate and investments to proceed, notwithstanding heightened geopolitical risk.

Jamie Rogers is a partner and Bethan Savage is an associate at Hogan Lovells. Mr Rogers can be contacted on +44 (0)20 7296 5795 or by email: jamie.rogers@hoganlovells.com. Ms Savage can be contacted on +44 (0)20 7296 7116 or by email: bethan.savage@hoganlovells.com.

Jamie Rogers and Bethan Savage

Hogan Lovells