War-Risk Insurance: The Hidden Current Account Channel from Hormuz to the Rupiah

Rupiah Stability Watch · 2026-07-23

The premise

The Hormuz escalation has produced two distinct oil shocks. One is visible: Brent at $88, up from $70 in May, flowing through the import bill. The other is invisible: a war-risk insurance surcharge of up to 5% of hull value on every tanker transiting the Strait, paid in dollars to Lloyd's and Bermuda syndicates. The "First Blood" gate piece identified this as "a latent current-account headwind the thesis has not yet priced." This analysis quantifies it.

Indonesia imports 1.2–1.5 mbpd of crude and products. Nearly every barrel passes Hormuz. At 5% of hull value, the war-risk premium is a separate cost layer — not embedded in the crude price, not hedged by Pertamina's term contracts, and not captured in the fuel subsidy calculus. It is a pure FX outflow, booked to "insurance services" in the current account, visible only in quarterly BoP data with a three-month lag.

What the evidence supports

1. The insurance layer explained

War-risk insurance covers loss or damage from hostilities, civil war, terrorism, mines, and missile strikes — perils excluded from standard hull & machinery (H&M) and protection & indemnity (P&I) policies. It is written per transit, not annually. The Joint War Committee (JWC) of Lloyd's and the International Underwriting Association designates "listed areas"; the Strait of Hormuz has been listed since the US-Iran strikes began.

Premiums are quoted as a percentage of the vessel's agreed hull value (insured value), payable in dollars to the underwriting syndicate (70–80% of global war-risk capacity sits in London; the rest in Bermuda and Continental Europe).

Pre-war baseline: 0.125–0.25% of hull value per transit (Lloyd's/Marsh; industry sources).

March 2026 peak: 2.5–5% of hull value (Lloyd's/Marsh; Analysis Atlas).

Late March (ceasefire window): ~1% — but return below 0.5% requires both a political resolution and several months of clean transit history.

Current (Night 7+ of escalation, US combat deaths, Kuwait desalination strike): 2–6%, with 5% the market midpoint for a VLCC transit.

2. Indonesia's exposure quantified

But this assumes all crude on VLCCs. Product tankers (LR2, LR1, MR) carry ~30–40% of volume at lower hull values ($25–35m). Weighting the fleet:

• Crude (VLCC/Suezmax): ~60% of volume, avg hull $38m
• Products (LR2/MR): ~40% of volume, avg hull $28m

Blended annual outflow at 5% premium: $1.1–1.7 billion per year (0.09–0.14% of GDP; current account deficit 2024 was $8.9bn, 0.6% of GDP).

If premiums settle at the late-March level (~1%), the drag falls to $0.2–0.3bn — still a new structural line item.

The war-risk premium is the market's own pricing of Hormuz risk. If it stays elevated, the current account carries a permanent drag — contradicting the "current account will heal with lower oil" view.

3. Passthrough mechanics: who pays, and when

Pertamina (state-owned, ~70% of crude imports): Charters vessels on time-charter or voyage-charter. War-risk for voyage charters is typically charterers' account — Pertamina pays. For time-charters, the owner pays H&M and P&I; war-risk is negotiated. In practice, Pertamina's procurement passes the cost into the landed cost of crude.

Private importers (BP, Vivo, Shell, ~30%): Same structure — war-risk is a voyage cost, embedded in CIF price.

Lag: Insurance is paid pre-voyage or at loading. The cost hits Pertamina's working capital immediately. The passthrough to domestic fuel pricing depends on the subsidy formula.

Subsidy interaction: The June 2026 adjustment raised non-subsidised Pertamax by 32% (Rp12,300 → Rp16,250/l). Subsidised Pertalite (Rp10,000) and Biosolar (Rp6,800) were frozen. The subsidy budget (APBN) covers the gap between the economic price (ICP + freight + insurance + margin) and the retail ceiling.

• If war-risk premium is absorbed in ICP: Pertamina's quasi-fiscal burden rises; the subsidy bill widens unless the ceiling moves.
• If passed to Pertamax: Non-subsidised consumers pay; no direct fiscal hit but demand destruction risk.
• If split: Both channels tighten.

At $1.1–1.7bn annualised, the war-risk premium adds Rp17–26 trillion to the import cost base (at Rp16,000/$). The 2024 fuel subsidy allocation was ~Rp65tn. A sustained 5% premium is a ~25–40% increment to the subsidy requirement before any oil-price move.

4. Non-linearity: what happens if a tanker is hit

Historical analogs give the range:

The 1980s peak (7.5%) on today's fleet would imply $1.6–2.5bn annualised for Indonesia — a 0.15–0.2% of GDP current account shock from insurance alone.

Key non-linearities:

• Capacity withdrawal: At 5%+, some syndicates decline Gulf exposure. Remaining capacity prices at a scarcity premium.
• Re-routing cost: Cape of Good Hope adds 10–14 days, $0.5–1.0m/voyage in fuel + charter — also an FX outflow.
• P&I club calls: If a tanker is hit, the International Group of P&I Clubs may levy supplemental calls on members (including Pertamina's chartered fleet).

5. Current account accounting: visible but lagged

Under BPM6 (used by BPS/BI), war-risk premiums are recorded in Services → Insurance and pension services → Direct insurance → Freight insurance / Other direct insurance (debit).

• Frequency: Quarterly BoP (published ~10 weeks after quarter-end).
• Granularity: No public line item separates "war-risk" from standard marine insurance.
• Real-time proxy: None. BI's monthly "services imports" aggregate is too broad.

This means policymakers see the drag after it has accumulated for a quarter. The $1.1–1.7bn annualised outflow would appear as a ~$300–425m quarterly debit — material against a quarterly current account deficit of ~$2–2.5bn.

6. Structural repricing test

The "structural repricing" thesis (Beyond the Hormuz Puzzle; The Rupiah's Paradox) argues the rupiah has already priced chronic Hormuz risk. War-risk insurance is the market's revealed price for that risk.

If premiums remain at 1–2% (the post-ceasefire equilibrium in March), the current account carries a permanent 0.03–0.06% of GDP drag — small in isolation, but additive to the oil-price channel and the capital-account volatility the thesis already tracks.

What I'm uncertain about

1. Pertamina's exact charter mix — the share of voyage vs. time charters determines who contractually pays war-risk. Industry norm is charterers' account for voyage charters; Pertamina's annual report does not disaggregate.

2. BI's internal tracking — the central bank may monitor war-risk outflows via its banking-channel FX data (insurance payments flow through correspondent banks). If so, the lag is shorter than BoP publication.

3. Reinsurance retrocession — some Indonesian insurers (e.g., Jasindo, Askrindo) may retain a slice of marine war-risk, recycling part of the premium domestically. The net FX outflow would be lower.

4. Product vs. crude split precision — BPS reports aggregate tonnage; the product-tanker share is inferred from refinery intake vs. product import data.

5. Subsidy formula rigidity — the ICP formula uses a moving average of Platts prices; it is unclear whether war-risk insurance is explicitly included or subsumed in the "freight and insurance" cushion.

What to watch

Prior work this builds on

• At gate: "First Blood: Does the Rupiah's Structural Repricing Survive US Combat Deaths in the Hormuz Conflict?" — identifies the channel.
• At gate: "Beyond the Hormuz Puzzle: Six Nights, a Stronger Rupiah, and the Case for a Structural Repricing of Geopolitical Risk" and "The Rupiah's Paradox: Appreciating Through Night 7 of the Hormuz Escalation" — structural repricing thesis.
• Published: "Strait of Hormuz Reopening and the Rupiah: Testing the Recovery's Foundation" — notes 1/3 traffic, war-risk premiums "cripplingly high."
• Published: "Middle East Conflict and the Twin Oil Squeeze on Indonesia's Rupiah" / "Oil Price Reversal Eases Twin Pressure on the Rupiah" — oil-price channel.
• Published: "Indonesia's Balance-of-Payments Adjustment" — current account deficit, reserve adequacy framework.
• AGA Daily Synthesis: Hormuz escalation daily tracking, oil/insurance market data.

Submitted for review at the gate. This piece does not advocate a policy response; it quantifies a transmission mechanism so that those who decide can see the plumbing.