Iran war shows urgency of Hong Kong’s green shipping transition
Iran war shows urgency of Hong Kong’s green shipping transition
The war in Iran, culminating in the de facto closure of the Strait of Hormuz, has again exposed the world’s energy and maritime sector to acute vulnerabilities. The spike in oil prices and surging freight rates may grab headlines, but beneath these shocks lie fundamental questions about Asia’s – and Hong Kong’s – energy security, the resilience of shipping risk management and the urgent need to transform our maritime industry for a greener future.
The Strait of Hormuz is not just a geopolitical hotspot – it’s the jugular vein of the world’s energy trade. Roughly one-fifth of global oil and liquefied natural gas (LPG) passes through its narrow waters. As conflict flared in Iran, leading shipping companies, including Maersk and Hapag-Lloyd, diverted vessels around the Cape of Good Hope, lengthening journey times and reducing global shipping capacity.
The result: higher shipping and energy costs that hit businesses and consumers worldwide. Importantly, these shocks are not one-offs. Years of sanctions on Iranian and Russian fleets had trimmed global tanker capacity. With vessels stranded on both ends of the strait, market jitters quickly translate into price hikes.
Asia’s giants are disproportionately exposed to oil transiting through the Strait of Hormuz: Japan gets 90 per cent of its crude from the region, South Korea about 70 per cent. By comparison, China’s energy security strategy – diversifying imports and expanding renewables – has reduced its direct reliance.
According to the World Bank, imported energy covers just above 20 per cent of China’s consumption. That relative insulation has rippled through markets; stock indices in Japan and South Korea reacted with greater volatility than those in Hong Kong and mainland China.
Hong Kong is a beneficiary of this mainland connection. The city’s 2024 Energy Statistics Report shows that over 80 per cent of its natural gas, LPG, aviation petrol and kerosene imports originate from mainland China. Still, about half of Hong Kong’s total energy import is destined for international bunkering. Any severe disruption – whether through maritime conflict or reassessments of shipping insurance – places our reputation as a global shipping hub at risk.
If the Strait of Hormuz closures highlighted the world’s energy bottlenecks, the insurance market’s response was equally telling. Leading providers from Gard and Skuld to the London P&I Club and the American Club cancelled war risk cover and raised premiums by up to 10 times, essentially weaponising their market dominance and capacity to serve only the lowest-risk clients and reaping profits from instability.
Most ships, except for certain Chinese ships allowed to transit through the Strait of Hormuz, were not insulated from such inflating freight rates and energy costs.
This situation validates Hong Kong’s forward-looking effort to establish a dedicated marine war-risk insurance pool, as announced in the chief executive’s 2025 policy address. Such a pool has shown potential in providing vital backstop capacity for Hong Kong and mainland Chinese shipowners and in diluting London’s historic dominance in marine insurance.
As risk pricing becomes a tool of geopolitical influence, Hong Kong must give shipowners reliable alternative options to reinforce its standing as an international maritime hub. Hong Kong can leverage its ties with the Middle East to further expand the source of funds and participating insurers for the war-risk pool. This would allow the city to provide coverage to a wider range of shipowners and enhance its role in marine insurance.
Disruption in the Strait of Hormuz will not be the last such shock in our lifetimes. For Hong Kong, the lesson is clear: energy security cannot rely on any single corridor or risk market. Our reliance on imports makes us vulnerable not just to physical disruptions but to financial ones.
This should be a catalyst for Hong Kong to accelerate the transition towards becoming Asia’s leading green fuel bunkering hub. Marine sectors worldwide are innovating with alternatives such as biofuels, ammonia and hydrogen. The administration deserves credit for its efforts since the release of the Action Plan on Green Maritime Fuel Bunkering. In the past year, the city has completed 16 LNG and 110 biodiesel bunkering operations, involving a total of 220,000 tonnes of green marine fuel. Earlier this month, Hong Kong conducted its first green methanol bunkering.
Embracing green fuel infrastructure not only aligns with its 2050 carbon neutrality pledges but will also solidify Hong Kong’s maritime sector as a future-ready, sustainable stronghold.
The Iran war’s immediate market impact is sobering but should be heeded as a call to action. Hong Kong’s shipping and energy industries must invest in risk sharing, diversify fuel sources and position the city as an indispensable partner in the world’s low-carbon transition. Our future security – and prosperity – depends on it.
The war in Iran, culminating in the de facto closure of the Strait of Hormuz, has again exposed the world’s energy and maritime sector to acute vulnerabilities. The spike in oil prices and surging freight rates may grab headlines, but beneath these shocks lie fundamental questions about Asia’s – and Hong Kong’s – energy security, the resilience of shipping risk management and the urgent need to transform our maritime industry for a greener future.
The Strait of Hormuz is not just a geopolitical hotspot – it’s the jugular vein of the world’s energy trade. Roughly one-fifth of global oil and liquefied natural gas (LPG) passes through its narrow waters. As conflict flared in Iran, leading shipping companies, including Maersk and Hapag-Lloyd, diverted vessels around the Cape of Good Hope, lengthening journey times and reducing global shipping capacity.
The result: higher shipping and energy costs that hit businesses and consumers worldwide. Importantly, these shocks are not one-offs. Years of sanctions on Iranian and Russian fleets had trimmed global tanker capacity. With vessels stranded on both ends of the strait, market jitters quickly translate into price hikes.
Asia’s giants are disproportionately exposed to oil transiting through the Strait of Hormuz: Japan gets 90 per cent of its crude from the region, South Korea about 70 per cent. By comparison, China’s energy security strategy – diversifying imports and expanding renewables – has reduced its direct reliance.
According to the World Bank, imported energy covers just above 20 per cent of China’s consumption. That relative insulation has rippled through markets; stock indices in Japan and South Korea reacted with greater volatility than those in Hong Kong and mainland China.
Hong Kong is a beneficiary of this mainland connection. The city’s 2024 Energy Statistics Report shows that over 80 per cent of its natural gas, LPG, aviation petrol and kerosene imports originate from mainland China. Still, about half of Hong Kong’s total energy import is destined for international bunkering. Any severe disruption – whether through maritime conflict or reassessments of shipping insurance – places our reputation as a global shipping hub at risk.
If the Strait of Hormuz closures highlighted the world’s energy bottlenecks, the insurance market’s response was equally telling. Leading providers from Gard and Skuld to the London P&I Club and the American Club cancelled war risk cover and raised premiums by up to 10 times, essentially weaponising their market dominance and capacity to serve only the lowest-risk clients and reaping profits from instability.
Most ships, except for certain Chinese ships allowed to transit through the Strait of Hormuz, were not insulated from such inflating freight rates and energy costs.
This situation validates Hong Kong’s forward-looking effort to establish a dedicated marine war-risk insurance pool, as announced in the chief executive’s 2025 policy address. Such a pool has shown potential in providing vital backstop capacity for Hong Kong and mainland Chinese shipowners and in diluting London’s historic dominance in marine insurance.
As risk pricing becomes a tool of geopolitical influence, Hong Kong must give shipowners reliable alternative options to reinforce its standing as an international maritime hub. Hong Kong can leverage its ties with the Middle East to further expand the source of funds and participating insurers for the war-risk pool. This would allow the city to provide coverage to a wider range of shipowners and enhance its role in marine insurance.
Disruption in the Strait of Hormuz will not be the last such shock in our lifetimes. For Hong Kong, the lesson is clear: energy security cannot rely on any single corridor or risk market. Our reliance on imports makes us vulnerable not just to physical disruptions but to financial ones.
This should be a catalyst for Hong Kong to accelerate the transition towards becoming Asia’s leading green fuel bunkering hub. Marine sectors worldwide are innovating with alternatives such as biofuels, ammonia and hydrogen. The administration deserves credit for its efforts since the release of the Action Plan on Green Maritime Fuel Bunkering. In the past year, the city has completed 16 LNG and 110 biodiesel bunkering operations, involving a total of 220,000 tonnes of green marine fuel. Earlier this month, Hong Kong conducted its first green methanol bunkering.
Embracing green fuel infrastructure not only aligns with its 2050 carbon neutrality pledges but will also solidify Hong Kong’s maritime sector as a future-ready, sustainable stronghold.
The Iran war’s immediate market impact is sobering but should be heeded as a call to action. Hong Kong’s shipping and energy industries must invest in risk sharing, diversify fuel sources and position the city as an indispensable partner in the world’s low-carbon transition. Our future security – and prosperity – depends on it.
