Bowen Professor Richard Kilpatrick Explains the Strait of Hormuz Crisis
Incoming Bowen Associate Professor of Law discusses maritime disruption, commercial contracts and the legal ripple effects of one of the world’s most significant shipping crises.
Richard Kilpatrick, who joins the UA Little Rock William H. Bowen School of Law this fall as an Associate Professor of Law after serving as a visiting professor, studies maritime law, international commercial law and geopolitical disruption in global trade. His new book, Geopolitical Disruption in Shipping: Sanctions, War, and Force Majeure, explores how war, sanctions and political instability create complex commercial disputes across the shipping industry.
In this Q&A, Kilpatrick discusses the ongoing Strait of Hormuz crisis, its impact on global shipping and the legal questions emerging from the disruption.
How is the Strait of Hormuz crisis affecting global shipping?
Shipping Disruptions and Navigation Concerns
The Strait of Hormuz is one of the world’s true maritime chokepoints: there is only one route for ships to get in and out of the Persian Gulf. As of mid-May, nearly three months after the war in Iran started, freedom of navigation in the Strait remains impeded in two ways: First, Iran has attacked and threatened to continue attacking merchant ships if they move through the Strait without its authorization. And second, the US military has imposed a purported “blockade” on Iran-linked ships. Neither the Iranian nor the American-imposed measures are totally effective. Some ships have been allowed safe passage due to ad hoc diplomatic arrangements negotiated on a case-by-case basis and others have slipped through the Strait at night after turning off their navigation transponders. But due to the risk of attack, the vast majority of ships trapped in the Gulf are just waiting for the conflict’s resolution. For perspective, during peacetime upwards of 150 ships move through the Strait in a given day. For the past few months, this number has dropped to single digits.
Humanitarian Concerns for Seafarers
The biggest logistical hurdle at the moment is the humanitarian concern for professional seafarers who remain on board these vessels. Recent reports suggest that as many as 20,000 seafarers are still trapped in the Gulf. Most of them are citizens of countries that are not at all associated with the war, such as the Philippines, Bangladesh, Indonesia, and India. They are genuinely innocent civilian bystanders that happen to have been performing their work in the wrong place at the wrong time. So first and foremost, many in the shipping industry are hoping that a sustained peaceful resolution will be achieved to open the Strait and allow the ships to depart the Gulf and the seafarers to be repatriated back to their home countries after a rather traumatic few months. Some good news is that recent reports indicate that during the ceasefire some of the seafarers have been able to evacuate or at least to receive supplies.
Supply Chain and Commercial Impacts
Another major problem flowing out of the Strait closure is the strain this has placed on global supply chains. In normal times, a significant proportion of the world’s supply of crude oil, refined oil products, liquified gas, and chemicals including fertilizer is exported out of the region to global markets. This includes Persian Gulf loadings out of Qatar, the UAE, Iraq, Kuwait, Bahrain, and parts of Saudi Arabia. With the Strait of Hormuz effectively shuttered and some of the energy export infrastructure damaged by the war, this is putting major stress on supply chains and driving up costs for consumers worldwide. But this turmoil is creating its own form of challenges within the shipping industry. During the current ceasefire, there has been an open question as to whether vessels should attempt to depart the Gulf, and who among the commercial actors with a stake in the voyage should have the right and responsibility to decide. This question of navigational safety is weighing heavily on the minds of those involved in the decision-making process, including shipowners in consultation with the shipmasters and crew, as well as other third parties such as insurers and vessel charterers.
“There is only one route for ships to get in and out of the Persian Gulf.”
What kinds of legal and commercial disputes are emerging from the crisis?
Marine War Risk Insurance
When assessing the broad commercial impact of this kind of disruption, it may be useful to think about the problem in terms of layers. The blockage of the Strait is impacting contracts for the sale of goods, vessel chartering agreements, insurance arrangements, trade financing and brokering services, and a number of other ancillary forms of transactions. As a maritime lawyer, I find the impact on insurance and vessel chartering agreements particularly fascinating.
The insurance dimensions have been in the news recently as it has been widely reported that insurance companies have cancelled cover due to the outbreak of war. This is not totally accurate. Marine war risk insurance is usually purchased separately from standard marine insurance, in part because war risks have long been viewed as special risks with premiums calculated based on a different set of factors. One of the peculiarities of war risk insurance is that there are actually two premiums, including one “additional premium” that may change depending on the status of the risk. For instance, a war risk premium may be set at one rate for worldwide trading, but there may be an additional war risk premium assessed for vessels that are navigating in particularly dangerous zones. The risk status of maritime zones can change quickly as security situations evolve, which has been the case in the Persian Gulf. At present, additional war risk premiums for vessels navigating in the Gulf are extremely high, especially for vessels with any US or Israeli nexus. There have been some discussions about the US government providing a form of state-backed war risk insurance in case the commercial supply of war risk insurance is no longer available, but apparently this has not been necessary in part because the high premiums make commercial war risk insurance quite lucrative for those willing to underwrite the risk.
Who Pays the Additional Costs?
One of the remaining commercial questions, however, is who bears the burden of paying for this additional war risk premium. The answer to this question may depend on other contracting arrangements, such as the terms of any underlying vessel chartering agreement made between the shipowner and the vessel charterer. If the vessel is on a voyage charter under which the charterer has agreed to make a lump sum payment of freight, it may be the shipowner who is responsible to cover the additional war risk premium if it was not included in the initial freight calculation, but if the vessel is on a longer term time charter, depending on the terms of the contract, the charterer may be on the hook for reimbursing the shipowner for the additional premium. Another larger scale insurance problem could take place if the blockage of the Strait protracts into 2027. If vessels are trapped for more than 12 months, this could lead to widespread insurance claims of constructive total loss, which could put severe pressure on the insurance industry as a whole. This eventuality is a long way off at the moment, but it is something industry participants are already concerned about.
Delays, Chartering and Risk Allocation
Beyond insurance, the blockage of the Strait is giving rise to further contractual questions of risk allocation between shipowners and charterers. One question is who—shipowner or charterer—must bear the burden of the delay costs. The familiar maxim “time is money” is certainly true in the vessel chartering context. Ships are expensive to build and to operate and due to the daily exposure to harsh elements like salt water and inclement weather, they have a relatively short useful life in which they must generate revenue to cover the costs of their construction. For this reason, shipowners of large ocean-going vessels routinely charter their ships to charterers for the purpose of ensuring the vessels consistently have commercial employment. This might be on a time or voyage basis. If for instance, a vessel is under time charter, the charterer must engage in commercial voyages to generate at least enough revenue to pay the shipowner an agreed daily rate of “hire.”
Questions of Contract Interpretation
When the vessel is trapped in the Gulf, it cannot engage in commercial employment to generate this revenue, which raises the question of whether the vessel should be placed “off-hire” during the delay. The answer to this question is ultimately one of contract interpretation, but in general time-chartered vessels remain on hire unless an enumerated off-hire event has occurred, such as fire or machinery breakdown. If a vessel’s machinery is destroyed by an Iranian drone or missile, it very well may be off-hire which would have the effect of placing the delay risk on the shipowner. But if there is merely a threat of attack that does not actually prevent the vessel from its ability to mechanically function as a ship, hire likely continues to run throughout the delay even though the ship is prevented from performing trades. If the vessel is indeed on hire while trapped in the Gulf, the charterer may have a financial incentive to try to push the shipowner to move through the Strait even though it is dangerous to do so. Whether the charterer has the right to issue such an order is yet another question of contract interpretation potentially implicating other terms in the contract, such as the so-called “safe port warranty” or perhaps other more explicit war risk clauses. The point is these commercial law questions do not always have easy solutions that will apply seamlessly to every ship trapped in the Gulf.
Are There Historical Parallels to Today’s Shipping Disruptions?
The Iran-Iraq War and the “Tanker War”
The short answer is yes, although none of the previous conflicts are identical to the current crisis. At the outbreak of the Iran/ Iraq war in 1980, dozens of vessels became trapped in the Shatt-al-Arab—the river that divides the two countries This led to commercial litigation and arbitration as to whether it was safe for merchant vessels to depart the river during the war. These vessel trappings led to seminal caselaw addressing the application of contract clauses and common law doctrines both in the insurance and the vessel chartering context. But then, several years into the conflict, the Persian Gulf became a very dangerous place as both Iran and Iraq began attacking neutral merchant ships to prevent the other side from being able to generate revenue by exporting oil. This period, known as the “Tanker War,” gave rise to additional insurance and vessel chartering disputes. Eventually, the US military attempted to intervene by reflagging and escorting tankers exporting oil out of Kuwait, which serves as a sort of precedent for the recent discussions about possible US-led convoys through the Strait.
The Suez Canal and Maritime Blockages
A second set of scenarios that has given rise to important caselaw on the subject are those involving blockages of the Suez Canal. It was closed due to regional fighting for a few months during the mid 1950s and again for eight years from 1967-1975. Vessel traffic was also impeded by non-state security threats, including the Somali piracy crisis of 2008-2012 and more recent attacks by Iran-backed Houthi rebels from 2023 to the present. The so-called “Suez cases” dealt with the questions of whether Suez closures amounted to contract frustration, impossibility, and impracticability, or whether they triggered more explicit contract clauses. But since there is actually another route via the Cape of Good Hope, the scenario is slightly different than the Strait of Hormuz crisis because there is simply not an alternative route available for vessels currently trapped in the Persian Gulf.
The War in Ukraine and Black Sea Shipping
Another relatively similar dynamic arose during the early months of the war in Ukraine, as the Black Sea was mined and vessels were attacked by drones and missiles. Others were trapped along Ukraine’s coasts. Some ships were unable to depart for more than a year, which ultimately did lead to insurance claims for constructive total loss. The initial danger in the Black Sea also created supply chain turmoil, particularly because much of the world’s supply of grains and fertilizers had previously been exported out of Black Sea ports. In the summer of 2022, the UN helped broker a temporary diplomatic solution, which allowed many ships to export grains and fertilizers out of a “humanitarian corridor” carved through the Black Sea. The agreement lapsed within a year and shipping in the Black Sea has been risky ever since. Caselaw addressing the commercial shipping dimensions of the war in Ukraine has been gradually trickling out, some of which may provide guidance when the inevitable stream of Strait of Hormuz cases makes its way to courts and arbitration tribunals in the months and years to come.
What Inspired Your New Book on Geopolitical Disruption in Shipping?
Geopolitical Disruption and Commercial Law
The book’s central focus is the notion that political volatility in the modern world is disrupting shipping activities and causing disputes that raise fundamental questions of commercial law. Geopolitics has been affecting shipping activities quite a lot in recent years, not only due to war and terrorism, but also due to sanctions, export controls, tariffs, and other measures that might be described as “trade war” techniques. I have been writing law review articles about these kinds of issues for a number of years, but over time I started noticing broader trends and decided to dig deeper to try to understand historical patterns in geopolitical maneuvering, shipping industry adaptation, and how these measures have impacted the resolution of related commercial disputes.
Physical Risk and Regulatory Risk
To keep the book in balance, I broke the forms of disruption into two sections: those that deal with physical risks and those that deal with regulatory risk. The first part of the book explores the commercial implications of physical disruption across three categories: war, unrest, and piracy. The second part of the book turns to purely economic measures, including sanctions and other forms of statecraft like embargos and tariffs. I aim to tie all of these issues together by examining how courts and arbitration tribunals have resolved these kinds of problems by reference to common law avoidance doctrines as well as bespoke contract clauses addressing force majeure or related categories. The book ultimately argues that this rapidly evolving area of international commercial law demands a readiness to borrow analytical approaches across categories of business disruption.
A Timely Study of Maritime Disruption
For better or worse, I completed the manuscript for the book prior to the full-scale war breaking out in Iran. Even so, it had already become clear that something like this could happen in the near future. Iran-backed militias have been attacking merchant ships in the Red Sea since 2023, and Israel and the US directly bombed Iranian nuclear sites in 2025. Iran had been threatening to close the Strait of Hormuz for years. For those of us who pay close attention to maritime security matters, once a full-scale regional war began to unfold in 2026, it was not a surprise to see the scope of the commercial disruption. My hope is that the principles examined in the book will aid the resolution of these emerging disputes along with others that may be looming on the horizon.
“The rapidly evolving area of international commercial law demands a readiness to borrow analytical approaches across categories of business disruption.”
How Does Your Scholarship Shape Your Teaching at Bowen?
Bringing Real-World Disputes Into the Classroom
While serving as a Visiting Professor at Bowen, I had the pleasure of teaching courses in contract law, sales, and maritime law. In each of these courses, we discussed contract avoidance doctrines, including frustration, impossibility, and changes in circumstances, as well as contract-based defenses such as force majeure provisions. In the maritime law course in particular, we spent several class sessions examining some of the key caselaw involving kinetic wars and trade wars. Given that the Iran conflict broke out right in the middle of our course last spring, this led to some lively discussions about what this might mean for maritime commerce.
Connecting Arkansas to Global Commerce
As an incoming Associate Professor, I hope to continue cultivating student interest in this area. As I tell my students, Arkansas is not as landlocked as people may think. A major navigable river cuts right past our law school campus before flowing into the Mississippi River to access some of America’s busiest ports. My hope is that pushing students to examine the complexities of international commercial law, maritime law, and geopolitics will spark interest in new career opportunities and further reveal the interconnected nature of the modern world.