Sovereign indemnity in insurance drag: the DFC facility

The Strait of Hormuz crisis is creating novel insurance risks that practitioners need to address carefully. While the debate over the legality of the various state actions will take years to unwind, oil and fertiliser need to flow in the meantime, and insurers need to price the risk of voyage through the Strait now.

The United States has stepped in where private capacity has withdrawn. Through the International Development Finance Corporation (DFC), the US is offering what may at first seem like a solution: a US$40 billion sovereign backstop, to keep commerce moving through the Strait of Hormuz while the underlying legal and diplomatic disputes remain unresolved.