Iran is seeking recognition of its sovereignty over the Strait of Hormuz, adding a new demand to its list of conditions to end the ongoing conflict sparked by the United States and Israel. The narrow waterway, through which a significant portion of the world’s oil and natural gas passes, has become a key strategic asset for Iran, potentially generating billions in revenue and exerting pressure on the global economy.
Iran’s Expanding Ambitions for the Strait of Hormuz
Iran has long threatened to close the strait in the event of an attack, but the extent of its recent success in disrupting global trade flows appears to have broadened its ambitions. Shipping through the chokepoint has largely halted due to Iranian attacks, causing turmoil in global energy markets and prompting emergency measures from countries worldwide to secure fuel supplies.
“Iran has been a little taken aback by how successful its (Hormuz) strategy has been – by how cheap and how comparatively easy it is to hold the global economy hostage,” said Dina Esfandiary, Middle East lead at Bloomberg Economics. “One of the lessons learned in the war is that it has discovered this new leverage, and it’s likely to use it again in the future. And I think monetizing it is part of discovering that it has this leverage.”
U.S. Secretary of State Marco Rubio warned Friday that establishing a tolling system at Hormuz would be a significant challenge following the war. Foreign ministers from the G7 stressed “the absolute necessity” to restore “safe and toll-free freedom of navigation.”
Formalizing Control and Potential Revenue
Mojtaba Khamenei used his first purported address as Iran’s new supreme leader to state that the leverage of blocking the waterway “must continue to be used.” Previously, Iran focused on sanctions relief and recognition of its nuclear program in talks with the U.S., but did not include control over the Strait of Hormuz.
Iran is now signaling a desire to formalize this leverage. Iranian lawmakers are considering legislation that would require countries using the strait to pay tolls, and an advisor to the supreme leader has discussed a “new regime for the Strait of Hormuz” after the war, allowing Tehran to impose restrictions and tie access to its geopolitical disputes.
James Kraska, a professor of international maritime law at the US Naval War College, stated that “imposing transit fees is a violation of the rules of transit passage.” He added that there is no legal basis under international law for a coastal state to charge fees in an international strait like Hormuz, despite the overlapping territorial seas of Iran and Oman.
The rules governing the strait are outlined in the UN Convention on the Law of the Sea (UNCLOS), though neither Iran nor the United States is a party to the convention. However, Kraska noted that many of its core principles are widely accepted as customary international law.
Potential Earnings and Current Practices
There is limited precedent for a state successfully charging for passage through an international strait. Denmark previously imposed fees through the Danish Straits but abolished them following protests in the 1857 Copenhagen Convention.
Experts question whether Iran could establish a tolling system that would gain international acceptance, but if successful, revenues could rival those generated by Egypt’s Suez Canal, according to CNN calculations. Approximately 20 million barrels of crude oil and oil products normally pass through the Strait of Hormuz daily. A reported fee of $2 million per tanker could translate to around $20 million a day, or about $600 million a month, from oil alone.
Including LNG shipments could raise that figure to over $800 million a month, representing 15%-20% of Iran’s monthly oil export revenue in 2024. For comparison, Egypt typically earns between $700 and $800 million a month from the Suez Canal, although revenues have recently decreased due to Red Sea disruptions.
Monetization of Hormuz may be driven by Iran’s economic pressures, as Tehran views charging for passage as a way to “make up for some of its economic shortfalls” under sanctions, according to Esfandiary. Iran is among the world’s most heavily sanctioned countries, second only to Russia.
Iran has stated that the Strait of Hormuz remains open, but not unconditionally, allowing “non-hostile” vessels to transit with coordination with Iranian authorities. Ship-tracking data indicates some tankers are using a route closer to Iran’s coast, with reports suggesting certain operators may be paying for safe passage.
Lloyd’s List reported Monday that more than 20 vessels have used a new corridor through the strait, with at least two understood to have paid around $2 million each. Iran’s Islamic Revolutionary Guard Corps has also established a registration system for approved vessels, and some governments are reportedly engaging directly with Tehran to secure transit for their tankers.
“This is happening. And I suspect it’s going to happen slightly more frequently if we don’t see some progress in terms of the negotiations,” Richard Meade, editor in chief of Lloyd’s List, told CNN. “But as we speak right now, the shipping industry is effectively in paralysis.”
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