Navigating Geopolitical Tides: Managing Political Risk in India's Maritime Sector

On a sweltering August morning, a fully laden Very Large Crude Carrier (VLCC) flying the Indian flag approaches the Strait of Hormuz. Its cargo of 2 million barrels of crude oil is destined for a refinery on India's west coast, a vital artery in the nation's energy supply chain. The vessel's master, an experienced Indian seafarer, faces a decision that no shipping contract, insurance policy, or legal opinion can resolve cleanly. The Islamic Revolutionary Guard Corps Navy demands approximately one to two million dollars per transit, payable in cryptocurrency, before granting clearance through a controlled corridor [citation:8]. Payment may constitute a criminal or civil offence under US, EU, and UK sanctions regimes. Refusal risks physical interdiction, as demonstrated by the attacks on the VLCC Sanmar Herald and the bulk carrier Jag Arnav in April 2026 [citation:8].

This is not a hypothetical scenario. It is the lived reality of the Indian shipping industry in 2026. The Strait of Hormuz, at its narrowest point just twenty-one nautical miles wide, carries approximately twenty million barrels of oil and petroleum products per day, roughly one-fifth of global seaborne oil supply, along with around twenty percent of the world's liquefied natural gas. India, the world's third-largest oil importer with an import dependency of over 88 percent, relies on this waterway for roughly 80 percent of its crude oil imports and a substantial portion of its LPG and LNG supplies [citation:4][citation:6]. The crisis, triggered by the US-Israeli strikes on Iran in late February 2026 and the ensuing blockade, has transformed a distant geopolitical risk into a direct economic and security stress test for the nation [citation:10].

This article provides a comprehensive strategic blueprint for India's shipping industry to navigate this volatile landscape. Drawing from the legal framework of the United Nations Convention on the Law of the Sea (UNCLOS), the practical lessons of the current crisis, and the innovative sovereign-backed solutions emerging from India's policy response, it outlines the key risks and the practical steps that businesses must take to build resilience. The analysis is structured around the four pillars of modern political risk management in the maritime context: legal and treaty protections, sovereign and commercial insurance, sanctions compliance, and operational strategy.

Part 1: The New Risk Reality Why India's Shipping Industry is on High Alert

For decades, the predominant belief was that geographical diversification into stable, democratic markets offered immunity from political disruption. This assumption has been shattered. The events in West Asia, the lingering effects of the Russia-Ukraine conflict, and the dramatic surge in US tariffs have demonstrated that no market, no matter how stable, is immune to the spillover effects of geopolitical tremors. For India's shipping industry, this new reality manifests in several specific and potent ways.

1. Energy Import Dependency as a Strategic Vulnerability

India's growth story is heavily reliant on imports that feed its industrial sectors. From electronics manufacturing and renewable energy initiatives to pharmaceutical production and digital infrastructure, Indian industry is dependent on a steady supply of machinery, energy inputs, and specialized components from a handful of countries. Any disruption to these supply chains whether through diplomatic tensions, sanctions, or sudden export controls can freeze projects worth billions of rupees.

India imported 242.4 million tonnes of crude oil in FY25, with import dependence at 89.1 percent [citation:10]. The country's heavy reliance on West Asia for a substantial portion of its crude oil and LPG imports makes this a live national security and corporate risk issue [citation:4]. The Strait of Hormuz is the primary conduit for these supplies, and its closure has forced India to scramble for alternative sources, including increased purchases of Russian oil, which now accounts for about 50 percent of India's crude imports [citation:1]. While this diversification has provided a buffer, it has introduced new risks, including exposure to secondary sanctions, shipping restrictions, and the logistical challenges of longer supply routes [citation:1].

2. The End of the Safe Haven and the Rise of Domestic Policy Volatility

The nature of risk has changed. Directors and audit committees are no longer satisfied with explanations that address short-term volatility alone. They now question concentration risks, sovereign exposures, and vulnerabilities along critical trade corridors. This shift is evidenced by a surge in demand for political risk insurance within India, rising by more than 30 percent over the past year. This growth is not just from export-heavy sectors but also from large corporates that historically dismissed such protection as optional.

The crisis has also brought into sharp focus the fragility of India's domestic maritime infrastructure and insurance capacity. While India has passed a suite of maritime reforms, including the Indian Ports Bill, 2025, and the Merchant Shipping Act, 2025, these have been criticized for centralizing power and potentially diluting ownership safeguards [citation:9]. The launch of the Bharat Maritime Insurance Pool represents a significant policy response, but its effectiveness depends on international acceptance and its ability to cover the full spectrum of maritime liabilities [citation:2].

3. The Rapidly Evolving Sanctions Landscape

The US Treasury's designation of Iran's shipping network has exposed a significant Indian footprint. Sanctions have named at least four Indian nationals, four India-linked companies, and eight commercial vessels connected to India [citation:3]. These actions reveal a network that extends from Mumbai and Chennai to Dubai and Singapore, moving Iranian and Russian oil while concealing the origin of cargo and financial transactions [citation:3].

The consequences for Indian shipping are profound. The shadow fleet, composed of aging vessels with opaque ownership and often lacking internationally recognized insurance, now faces a global crackdown. Indian authorities have also seized suspected Iranian and Russian tankers [citation:11]. The risk of being designated, having assets frozen, or facing criminal prosecution is no longer a distant threat but an immediate operational reality.

4. The IRGC's Managed Corridor and the Temptation of the Toll

Iran has established a de facto managed corridor through the Strait of Hormuz. Vessels carrying specific cargoes, such as crude oil for China or LPG for India, and those from countries Iran considers friendly, are allowed to transit [citation:14]. The toll, which is unlawful under international law [citation:4], is a key feature of this regime. The demand for payment in cryptocurrency does not avoid exposure under US, EU, and UK sanctions regimes, which apply equally to virtual currency transactions [citation:14].

The dilemma for Indian shipowners is acute. Paying the toll may be the only way to secure safe passage, but it engages material support provisions for the IRGC, which is designated as a terrorist organization by the United States, European Union, and United Kingdom [citation:14]. Refusing payment, as demonstrated by the attacks on Indian vessels, carries the risk of physical interdiction [citation:8]. This legal and commercial deadlock is the central challenge of the current crisis.

Part 2: The Four Pillars of Political Risk Management in India's Shipping Industry

To navigate this complex environment, Indian shipping companies must adopt a holistic, multi-layered strategy. The four main methods for managing political risks are: legal and treaty protections, sovereign and commercial insurance, sanctions compliance, and operational strategy. These must be integrated into a comprehensive corporate strategy.

Pillar 1: Navigating the Legal and Treaty Framework

Investment treaties are an increasingly powerful tool for investors in India, provided they understand the evolving rules.

Leverage the New BITs

For investors from countries with new or updated BITs with India (like the UAE, Kyrgyzstan, Uzbekistan, and soon Israel and Saudi Arabia), these treaties offer a direct, enforceable route to protect their investments. It is critical to structure investments to qualify for protection. The recent ruling in the RAKIA case, where the English Commercial Court ruled that RAKIA's investment in India must be viewed holistically, has reassured investors that access to arbitration under BITs should not be interpreted restrictively.

Understand the Local Remedies Route

Under the 2016 Model BIT, investors had to pursue domestic legal remedies for five years before approaching international arbitration. This is changing. The new treaties (e.g., with the UAE) reduce this to three years, and future treaties may shorten it further. However, the government remains firm that exhausting local remedies is a prerequisite for accessing international arbitration, so a robust local legal strategy is non-negotiable.

The Power of Old Laws

As practitioners at Brus Chambers note, there are instances where an old investment law with recourse to ICSID arbitration can be a game-changer. Investors must conduct thorough due diligence on both national investment laws and the full spectrum of treaties to identify all potential avenues for recourse.

Pillar 2: The Bespoke Solution Direct Agreements with the State

For large-scale, strategic investments, negotiating a bespoke agreement with the central or state government is often the most effective form of protection. These agreements can go beyond what is offered in a treaty or a national law.

Key Elements

They can include stabilisation clauses that pre-empt changes to the legal or regulatory regime, as well as provisions for compensation in the event of adverse changes. Governing law and arbitration are vital. It is vital to include a clause stipulating international law or the law of a foreign jurisdiction as the governing law. This prevents a state from simply legislating its obligations away. Crucially, these agreements must contain an international arbitration clause and a clear waiver of sovereign immunity to be enforceable.

Pillar 3: The Financial Shield Political Risk Insurance

Political Risk Insurance (PRI) is no longer an optional extra; it is a core component of a resilient risk management strategy for any company with significant cross-border exposure.

Advantages of PRI for India

• A Straightforward Claim Process: Unlike making a claim against a state, which can be a lengthy and unpredictable diplomatic and legal battle, pursuing a claim against an insurer is governed by clear contractual provisions. The process is typically faster, more predictable, and less expensive.
• Tailored Coverage: PRI policies can be specifically negotiated to suit the particular needs of a project. This includes the policy period, the definition of insured risks, how loss is calculated, and who is insured. This is vital for complex infrastructure, mining, or energy projects.
• The Diplomatic Umbrella: When PRI is provided by a state-backed insurer like India's New India Assurance or a multilateral entity like MIGA, it adds another layer of security. Governments are often more cautious about negatively affecting projects that are insured by these entities, as it can elevate an investor's concerns to the interstate level and attract unwanted international scrutiny.

Disadvantages and Critical Considerations

• Cost and Capacity: PRI can be prohibitively expensive for some projects, and the insurance market's appetite fluctuates. It is more difficult to obtain and more expensive for sectors like mining or oil and gas due to the higher risk of expropriation.
• Avoiding the Nasty Surprise: A critical lesson from the COVID-19 pandemic is the danger of a coverage gap. Companies often discovered that their business interruption policies provided limited or no cover for pandemics. The same applies to political risks. Failure to review insurance arrangements holistically can lead to a scenario where you believe you are covered, but an exclusion (like a broadly drafted war exclusion) leaves you bearing the full loss.
• Duty of Fair Presentation: As the briefing document stresses, complying with the duty of fair presentation is vital. Disputes frequently arise because government actions are informal, indirect, and ambiguous. Proving state intent, especially in opaque regimes, is notoriously difficult. Insureds must collate strong factual and expert evidence and maintain a detailed paper trail of mitigation steps before presenting a claim.

Pillar 4: The Sovereign Solution The Bharat Maritime Insurance Pool

The Bharat Maritime Insurance Pool (BMIP) is a landmark development in India's maritime sector. Launched in May 2026 with a sovereign guarantee of ?12,980 crore, it provides an additional domestic source of insurance capacity for war-risk and, more recently, Protection & Indemnity (P&I) cover [citation:2][citation:13].

Why the BMIP Matters

• Reduced Costs: The government has stated that war-risk premium rates have fallen by around 35-40 percent from levels seen at the height of the conflict [citation:2][citation:13].
• Domestic Capacity: The BMIP reduces India's reliance on overseas markets for specialized marine insurance, which can be volatile during periods of geopolitical disruption [citation:2].
• Expanding Scope: The expansion into P&I cover represents a significant step, as P&I is a specialized segment of marine insurance with a large international market presence. The first policies were bound in July 2026 for vessels owned by the Shipping Corporation of India [citation:2].
• Operational Rollout: More than 1,600 policies have been issued, demonstrating growing adoption by the sector [citation:13].

The Challenge Ahead

International acceptance of BMIP-backed policies is the primary challenge. For vessels to operate internationally, their insurance arrangements need to be recognized by ports and other stakeholders across jurisdictions [citation:2]. The industry expects P&I cover for ocean-going vessels to be available by 2027 [citation:2].

Part 3: A Step-by-Step Guide for Shipping Companies Operating in India

Based on the analysis, here is a step-by-step guide for shipping companies, charterers, and insurers to proactively manage political risk in the Indian context.

Step 1: Board-Level Ownership and a Shift in Mindset

Recognize that geopolitical risk is a strategic, board-level issue, not just an operational one. Move beyond a focus on quarterly volatility and develop a strategy for generational resilience. Actively quantify and, where appropriate, transfer these risks.

Step 2: Conduct a Comprehensive Political Risk Audit

Map your entire value chain to identify vulnerabilities. This includes:

• Supply Chains: Where are your critical supplies sourced? Identify single points of failure and dependence on politically sensitive regions.
• Investment Structure: How is your investment structured? Are you maximizing the protection offered by the new BITs? Is your subsidiary a holding company that does not conduct substantial business, a potential vulnerability under some treaties?
• Regulatory Dependencies: What permits, licenses, or government approvals are vital to your operations? Are these at risk from policy changes at the state or central level?
• Geopolitical Exposure: How does the ongoing West Asia crisis, the US-China strategic competition, or India's internal coalition dynamics affect your business?

Step 3: Master the Treaty Maze

• Conduct a thorough due diligence on all BITs that apply to your investments in India.
• Understand the specific requirements of the treaty, especially regarding the definition of investment and the mandatory process of exhausting local remedies. For the latest treaties, this period is getting shorter, so your strategy must be agile.
• Stay updated on India's evolving Model BIT and its implications for future investments.

Step 4: Prioritize Direct Agreements for Strategic Assets

• For large, long-term, or highly regulated investments (e.g., in infrastructure, energy, or defence), prioritize negotiating a bespoke direct agreement with the relevant state or central government.
• Ensure these agreements contain:
  • A robust stabilisation clause to protect against adverse regulatory changes.
  • A clear international arbitration clause with a waiver of sovereign immunity.
  • A governing law clause that prioritizes international law in case of conflict with domestic law.

Step 5: Insurance-Proof Your Strategy

• Do not rely solely on general insurance policies. Work with specialist brokers to design a specific political risk insurance (PRI) strategy.
• Be meticulous about the duty of fair presentation when taking out and maintaining your policy. Any inaccuracies or omissions could invalidate your cover.
• Be clear on your insurer's subrogation rights. Understand what rights they acquire after a claim payout and what level of assistance you are required to provide. Failure to act on a claim could be treated as a breach of your duties by the insurer.
• Consider the BMIP as a primary or supplementary layer of cover. Engage with state-backed insurers like New India Assurance, which are actively developing specialized covers for political and war-related risks [citation:2].

Step 6: Harness the Made in India Solutions

• Consider leveraging domestic insurance capacities, particularly the new state-backed pools like the Bharat Maritime Insurance Pool (BMIP) for maritime risks. These sovereign-backed solutions can provide stability and reduce reliance on potentially volatile international reinsurance markets.
• Engage with state-backed insurers like New India Assurance, which are actively developing specialized covers for political and war-related risks.

Step 7: Prepare for the Local Remedies Phase

• With the expectation of a mandatory period of local remedies before international arbitration, build a robust and agile legal strategy for engaging with Indian courts.
• This includes establishing relationships with top-tier Indian legal counsel and preparing for cases that may take 2-5 years to reach a final judgment.

Step 8: Strengthen Supply Chain Resilience

• Develop a strategic diversification plan for your supply chains, moving away from single points of failure.
• This might involve finding alternative sources for critical components, building buffer stocks, or investing in domestic production capabilities to align with India's Atmanirbhar Bharat vision.
• For imports, ensure that cargo insurance includes war-risk endorsements for shipments passing through high-risk zones.

Step 9: Monitor Political and Geopolitical Developments Proactively

• Establish a dedicated system for monitoring political and geopolitical risks. This should go beyond news alerts and involve in-depth analysis of:
  • Domestic Politics: Track state-level elections and coalition dynamics. The West Asia crisis has demonstrated how global events can quickly become kitchen-table issues that influence electoral outcomes.
  • International Relations: Monitor India's strategic engagements, such as its role in QUAD or BRICS, which can signal potential shifts in policy.
  • Regulatory Changes: Track the frequent changes in the FDI policy framework, including sectoral caps and route requirements.

Step 10: Plan Your Exit and What If Scenarios

• In a world of increased volatility, it is not enough to plan for success. You must also plan for failure.
• Develop detailed contingency plans for various worst-case scenarios, including forced divestiture, expropriation, or total loss of an asset.
• Ensure that your treaties, insurance policies, and direct agreements all align to provide an exit mechanism that protects your capital and reputation.

Part 4: Recommended Steps for Affected Parties in the Strait of Hormuz Crisis

The legal analysis above has direct and immediate practical consequences. The following steps address the specific risks arising from the sanctions exposure and legal impossibility issues identified in this article.

1. Do not submit documentation to IRGC intermediaries without first obtaining legal advice. The access regime currently in operation requires submission of cargo manifests, crew lists, ownership records, and destination details to IRGC-connected intermediaries before clearance is granted. This submission may itself engage the sanctions regimes discussed in this article, depending on the nature and extent of the interaction, regardless of whether any toll payment is subsequently made. All entities should obtain jurisdiction-specific legal advice before providing any documentation to any IRGC-affiliated body.
2. Document the toll demand contemporaneously and in full. If an IRGC vessel broadcasts a toll demand, the time, location, precise nature of the demand, identifying details of the vessel, any threats made, and all communications and responses should be recorded at the time. This contemporaneous record is essential for any subsequent legal proceedings, insurance notifications, and the evidential record relevant to any duress arguments.
3. Seek coordinated multi-jurisdictional sanctions advice before any decision is made on payment, refusal, or diversion. A legal opinion from counsel in one jurisdiction does not address exposure in others. Decisions on payment, refusal, or diversion should not be taken without advice covering all jurisdictions in which the relevant entities and their affiliates operate.
4. Notify your flag state, P&I club, and hull underwriters before any planned transit into the Strait. Contemporaneous notification helps preserve insurance coverage positions and creates a record supporting causation arguments under Clause 4.1.6 of the Institute War and Strikes Clauses in the event of interdiction following refusal to pay. Notification after the event is materially less effective.
5. Monitor OFAC for any guidance specifically addressing toll payments. General Licence U, issued on 20 March 2026, expired on 19 April 2026 and no extension has been announced as at the date of this article. No guidance specifically addressing toll payments has been issued. Entities should monitor OFAC for any supplemental general licence or guidance before taking action involving any aspect of activity within the scope of the applicable OFAC sanctions framework.

The toll is unlawful, and paying it exposes parties to liability under applicable sanctions regimes. These two propositions, operating simultaneously, describe a situation that international law, domestic criminal law, and commercial contract law each produce consistently within their own frameworks, yet which collectively leave the shipowner, charterer, and cargo interest without a clear path forward.

Consider the position of a shipowner with a UK management office whose time-chartered vessel approaches the Strait of Hormuz carrying CIF cargo. UNCLOS treats the toll as unlawful. The IRGC will refuse clearance, and the vessel risks physical interdiction if it attempts to proceed without authorisation. Applicable sanctions regimes treat payment as prohibited, with duress unlikely to provide a defence. The time charterer asserts that the toll falls for its account and requires the vessel to proceed. The hull underwriter reserves its position on whether physical interdiction for refusal to pay constitutes a war peril or a financial cause under Clause 4.1.6 of the Institute War and Strikes Clauses, which excludes losses arising from failure to pay any financial cause.

None of the legal frameworks engaged in this situation provides a clean exit. Each is internally coherent. Taken together, they create a deadlock that practitioners must navigate using the only tools currently available: bespoke contractual drafting, careful governing law selection, multi-jurisdictional sanctions compliance advice, and rigorous pre-transit insurance review.

Part 5: The Broader Geopolitical and Economic Implications for India

Energy Security and Economic Resilience

The Strait of Hormuz crisis has exposed India's structural vulnerability to external shocks. With roughly 80 percent of its crude oil and a significant portion of its LPG and LNG imports transiting this waterway, any disruption immediately raises shipping and insurance costs, leading directly to higher prices for petrol, diesel, and cooking gas [citation:10]. The financial impact is substantial. Rising tanker freight, war-risk insurance premiums, and spot fuel purchases are emerging as the first cost pressure points, potentially adding $2-3 per barrel to India's landed crude cost and translating into a ?2-3 per litre retail impact if oil marketing company margins are maintained [citation:12].

India's diversification strategy, including increased purchases of Russian oil, has provided a buffer, but it is not without risks. Russia now accounts for about 50 percent of India's crude imports, up from 23 percent in January 2026 [citation:1]. While this shift reflects a move away from Middle East supplies, it introduces new dependencies and exposure to US sanctions and shipping restrictions [citation:1]. The US has issued temporary waivers for Russian oil, but these are subject to change, and the shadow fleet carrying Russian oil is facing a global crackdown [citation:11].

The Shadow Fleet and Sanctions Compliance

The shadow fleet, which includes aging vessels with opaque ownership and often lacking internationally recognized insurance, has been a critical enabler of Russian and Iranian oil trade. However, the global enforcement environment has tightened significantly. US, Indian, and European authorities have seized, detained, or boarded at least 14 shadow fleet vessels since December 2025 [citation:11]. In India, authorities have seized three suspected Iranian tankers in the same period [citation:11].

The US Treasury's sanctions against the Shamkhani network have specifically targeted Indian companies and nationals, revealing a significant Indian footprint in the shadow fleet [citation:3]. The risk of designation, asset freezes, and criminal prosecution is now a primary operational risk for Indian shipping companies involved in this trade. Sanctions compliance is no longer optional; it is a prerequisite for survival.

The Role of Sovereign-Backed Solutions

The Bharat Maritime Insurance Pool (BMIP) is a direct response to these vulnerabilities. By providing a domestic source of insurance capacity, it aims to reduce India's reliance on overseas markets, which can be volatile during periods of geopolitical disruption [citation:2]. The expansion into P&I cover is a significant step, but the challenge of international acceptance remains [citation:2]. The BMIP's effectiveness will depend on how widely its insurance cover is accepted across international shipping routes, a development the industry expects to accelerate by 2027 [citation:2].

India's engagement with the US on political risk insurance is another critical element [citation:6]. The US proposal, championed by President Trump, would provide risk insurance to merchant vessels transiting the Strait of Hormuz, potentially backed by naval escorts [citation:6]. While the details are still being negotiated, such a mechanism could provide a vital safety net for Indian shipping, reducing the commercial and operational risks of transiting the strait [citation:6].

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