The ongoing crisis in the Strait of Hormuz has been described as the largest disruption to world energy supplies since the 1970s. As governments scramble to reopen a waterway that carries around 33,000 vessels a year, a strategic waterway that hosts 2.8 times as many vessels must also be considered. The Taiwan Strait is one of the busiest marine corridors in the world.

Taiwan, like much of East Asia, has felt the effects of the Hormuz closure firsthand, and has moved quickly to secure its near-term energy supply through spot market purchases and new long-term contracts with American suppliers. However, securing the fuel and ensuring it can arrive are two different challenges. 

The Hormuz crisis points out that insurance markets are quick to splinter when a vital maritime corridor comes under pressure. War risk premiums have surged and remain one of the most consequential obstacles in facilitating the flow of energy. As government backstops emerge from the United States, India, and South Korea, Taiwan ought to prepare contingency plans to respond to potential marine insurance market disruptions.

Of course, the Hormuz crisis is in no means a direct analogy for the Taiwan Strait. The two waterways differ fundamentally in geography, as the Strait of Hormuz is roughly 29 nautical miles wide at its narrowest point, while the Taiwan Strait spans an average of 96 nautical miles and narrows to 70 miles at its tightest point. The difference in scale alone makes the kind of strict chokehold Iran has exercised far harder to replicate. 

Under a very different geopolitical logic, Iran has demonstrated a unique capacity to strictly control the flows of commercial vessels, a feat that China may be deterred from due to the proportionally heavier economic fallout that would occur. For example, based on data from Kpler, a maritime data firm, among the 1,400 cargo vessels that sailed daily through the Taiwan Strait last year, 44.5 percent of them were called to China’s ports. 

Yet despite these differences, the Hormuz crisis offers a valuable, real-time stress test of how energy chokepoints respond under pressure and a starting point that Taiwan can learn from.

Taiwan’s Solution to the Current Hormuz Energy Crisis

Consider first how Taiwan responded to the Hormuz crisis. Around 81.3 percent of Taiwan’s electricity generation relies on imported fuels, meaning that maritime interruptions have serious implications for the island. LNG itself accounts for nearly 50 percent of Taiwan’s total electricity generation, making the damage done to Qatar’s Ras Laffan port particularly dire, especially given that the state-owned CPC Corp.’s 5 percent stake in Ras Laffan’s production lines. In fact, in 2025, 33.7 percent of Taiwan’s LNG came from Qatar, mostly from that port.

Taiwan has implemented measures to cope with this interruption, securing additional spot market purchases, primarily from Australia and the U.S., to ensure enough LNG supply through September. CPC has also signed a 25-year sale and purchase agreement with Cheniere Energy in February of 2026, purchasing up to 1.2 million tonnes per annum (mtpa) delivered from 2026 through 2050. This agreement came as an addition to a previous contract supplying 2 mtpa beginning in 2021 with a term of 25 years. These new Cheniere deliveries are set to begin in June, offsetting the loss of one to two shipments from Qatar per month. 

On the demand side, the Ministry of Economic Affairs directed the state-owned Taiwan Power Company to prepare and activate auxiliary coal-fired units to ensure consistent electricity delivery. This shift would reduce natural gas consumption and ease pressure on LNG carrier scheduling. If fully utilized, the available coal capacity would cut daily gas consumption by around 20 percent, trimming the need for up to 5 to 5.5 LNG shipments per month, according to the Research Institute for Democracy, Society, and Emerging Technology’s estimates.

This is good news, considering the recovery of the LNG production facility at Ras Laffan may take months to years. Taiwan has been seeking to expand new contracts with suppliers from non-Gulf regions, specifically the U.S. According to the latest statement from the Ministry of Economic Affairs, these contracts, in addition to other energy procurement commitments stemming from Taiwan’s trade deal with the U.S., will increase imports of American LNG from 10 percent in 2025 to 25 percent by 2029.

This supply shift will also carry downstream implications regarding American vessel operators. According to data from Kpler, in 2025, 10 American-operated vessels out of 174 delivered LNG to Taiwan’s ports. By 2029, the number of American-operated vessels delivering LNG will likely increase alongside the increase in LNG imports. For American operators, this represents a growing stake in Taiwan’s energy security as they take on a larger share of Taiwan’s energy supply chain. Essentially, their exposure to a Taiwan Strait contingency grows proportionally, demanding advance planning to ensure the resilience of these contracts.

The Insurance Problem Still Standing in the Way

Taiwan’s energy supply is secured for now, but the Hormuz crisis reveals that LNG contracts and spot market purchases cannot address the more fundamental concern of whether insurers will cover the ships that carry them.

Insurance markets reacted swiftly after February 28. Insurers withdrew, causing uncertainty in shipowners and the seas around the Strait of Hormuz. When insurers returned to the market, premiums had risen from 0.25 percent pre-conflict to between 3.5 percent and 7.5 percent per voyage. This brought the cost of a voyage up to $375,000 per supertanker, a $250,000 increase from previous levels.

It is important to acknowledge that insurance coverage did not disappear entirely, but the surge in premiums has priced out certain voyages. Many shipowners, facing both elevated premiums and the underlying physical risk, have simply chosen to avoid the area regardless of whether coverage is technically available. This resulted in a market that existed, but was failing to actually facilitate movement.

The United States was the first to respond, announcing a $40 billion DFC-led reinsurance facility to backstop war risk premiums for vessels operating in the area. Within weeks, both India and South Korea unveiled their own plans for government-backed schemes as well. While each facility differs in structure and financial capacity, they all share the same underlying logic of using public financial support as a buffer against anticipated losses in the strait, and deploy it in partnership with private insurers to expand overall coverage capacity. Although the DFC facility is not yet operational (it is contingent upon a Naval convoy that does not appear to be available), the Indian facility issued its first policy in May.

The model has been successful in the past. These mechanisms are reminiscent of Ukraine’s Unity Facility, which offered $50 million in hull and protection and indemnity war risk insurance. Kyiv was highly effective in bringing insurance rates down and facilitating shipping in the Black Sea despite the ongoing war.

Taiwan has yet to establish an equivalent facility, but the current rollout of the American, Indian, and South Korean mechanisms offers a valuable lesson. Under ongoing crisis conditions, each mechanism is moving slowly, requiring extensive coordination between government agencies, private insurers, and shipping operators before becoming operational. Taiwan should not only recognize that a similar facility may be needed one day, but also that building one from scratch under pressure would be difficult.

Taiwan Should Move Now

One step in a positive direction has already been taken in Washington. The Taiwan Energy Security and Anti-Embargo Act, introduced by Senators Chris Coons (D-Del.) and Pete Ricketts (R-Neb.) well before the Hormuz conflict erupted, signals that Taiwan’s energy vulnerabilities have already been top of mind. The bill is broad in scope, including measures to facilitate LNG exports to Taiwan and – critically – authorizing the Department of Transportation to provide insurance coverage for commercial ships carrying food or fuel to Taiwan. This provision already gives Taiwan a foundation for the kind of facility now being improvised in the Gulf, potentially shortening the implementation timeline.

However, the bill currently faces long odds – a 6 percent chance of passing according to GovTrack – and its prospects show little signs of improving in the short term. Despite this, the events unfolding in the Strait of Hormuz make a strong case for these kinds of measures and the bill importantly recognizes the risk of maritime disruptions, taking the first steps to institutionalize energy security planning. 

In the meantime, Taiwan should not wait for Washington to act. Taiwan and its partners are prompted to collaborate across insurance frameworks, shipping coordination, and supply chain resilience. To start, governments should be learning from the emerging insurance facilities, as they demonstrate why the insurance provisions of the Coons-Ricketts bill deserve more serious consideration than their passage odds currently grant them. In particular, further interrogation of whether an insurance mechanism alone can move the needle, or if further protection measures such as escorts are necessary is a key point for discussion. Additionally, as American LNG operators take on a growing share of Taiwan’s energy supply, the question of how to coordinate deliveries under contested conditions will become a necessity. 

Clearly, the Hormuz crisis demonstrates how energy chokepoints can fracture, how insurance markets can act as actuarial blockades, and how government backstops and diversified supply chains eventually prove their worth. The Taiwan Strait has not yet been tested the way the Strait of Hormuz has, and luckily, the window to prepare remains open.