Hong Kong-based global reinsurer Peak Re (Peak Re) set out its assessment of the impact of the Iran conflict on the economy and re/insurance markets in a recent analysis led by Vice President and Economist Kritika Kashyap.
Peak Re sees this situation not only as a geopolitical crisis, but also as a developing energy and supply chain shock with significant implications for the re/insurance market.
According to Peak Re’s analysis, the conflict, which has been escalating since late February, has spread to global markets through the disruption of the Strait of Hormuz, an important artery for energy trade.
The reinsurer noted that about a quarter of offshore oil and a fifth of liquefied natural gas flow through the strait, making it a critical pressure point for global supplies. Recent shipping suspensions and the repricing or withdrawal of war risk insurance have added to volatility, causing oil, gas and freight costs to rise sharply.
Peak Re highlighted that Brent crude oil prices have climbed to over US$100 per barrel from around US$70 before the conflict, while natural gas prices in major hubs have risen by 40-50%. Freight costs have also increased significantly, with the Middle East route increasing by more than 40%. The company warned that damage to energy infrastructure and production outages at key oil fields could cause prices to rise for months.
From a reinsurance/insurance perspective, Peak Re emphasizes that most material risks are indirect. While direct war risk is often limited or excluded, reinsurers identified three key channels of impact: supply chain disruptions, inflationary pressures from claims and broader macroeconomic deterioration affecting credit risk.
In the property and casualty sector, Peak Re notes that while most war-related losses fall under specialized cover, infrastructure damage intersecting with standard “all risks” policies and contingent business interruption can create complications. What’s more, the reinsurer cited rising energy, freight and input costs as a driver of higher construction and repair charges, reinforcing the link between inflation and claims severity that has existed since 2021.
The company also drew attention to the wider industrial impact of the disruption. In addition to hydrocarbons, the Middle East is also a major supplier of inputs such as fertilizers, sulfur and petrochemical feedstocks, meaning long-term disruption could spread to industries such as electronics, food, chemicals and manufacturing. This increases the potential for multi-line accumulation and contingent business interruption losses across global portfolios.
On the macroeconomic front, Peak Re cited estimates from the International Monetary Fund that a sustained 10% rise in energy prices could increase global inflation by about 0.4 percentage points and reduce GDP growth by up to 0.2 percentage points.
However, reinsurers have outlined more severe downside scenarios. If oil prices remain above US$120 per barrel for a long period of time, global inflation may rise by 2-3 percentage points and economic growth may fall by 1-2 percentage points. In an extreme scenario, when oil prices reach $200, Peak Re warns of a possible stagflationary shock, where high inflation combines with a sharp slowdown in global output.
These macro pressures directly affect trade credit risk. Peak Re suggests that in the short term, insurers may be able to manage risk exposures by adjusting limits and pricing.
However, if the disruption persists, slower growth and higher input costs could lead to an increase in bankruptcies, particularly in energy import markets and in sectors such as transport, aviation, logistics and manufacturing. The reinsurer also cited the risk of rising trade credit and contractual frustration line claims, as well as increased pressure on sovereign and quasi-sovereign debtors.
A central theme in Peak Re’s analysis is the uneven impact across regions, with Asia being particularly affected due to its reliance on energy flows from the Middle East. The reinsurer pointed out that about 84% of crude oil and 83% of LNG passing through the Strait of Hormuz flow to Asian markets, with China, India, Japan and South Korea accounting for the majority of flows.
However, Peak Re differentiates between different economies. China is considered relatively resilient due to its diversified supply sources and large strategic reserves, while Japan and South Korea have benefited from large inventories and policy measures such as fuel price caps. Risks to India are more modest, but its current account and currency could come under pressure in a prolonged high-price environment.
In contrast, Peak Re sees economies such as Pakistan and the Philippines as more vulnerable, citing high import dependence, limited reserves and greater sensitivity of domestic inflation to global energy prices. Reinsurers warn that continued price increases in these markets could lead to a spike in inflation, currency pressures and weakness in public sector balance sheets, with clear implications for sovereign and credit risk.
For Europe, including the UK, Peak Re expects that the impact, while still severe, will be less severe than the energy shock in 2022, and that as prices continue to rise, inflation is likely to rise and economic growth may weaken. While higher global prices still impact domestic fuel costs and consumer spending, the United States, as a net energy exporter, is generally seen as less sensitive.
Overall, Peak Re’s assessment highlights that the Iran conflict is a multi-layered risk event for reinsurers, driven less by direct losses and more by its knock-on economic impacts.
The reinsurer concluded that the situation highlights the need to integrate energy and geopolitical risks more closely into underwriting, pricing and capital allocation, while increasing monitoring of supply chain and credit risks as the global economy adapts to shocks.
