## Iran War & the Strait of Hormuz: A Potential Economic Game Changer
Recent developments in the conflict involving Iran have brought a new dimension to the geopolitical landscape: control over the Strait of Hormuz. An Iranian official recently added a significant demand to end the ongoing conflict – recognition of Iran’s sovereignty over this crucial waterway. This narrow passage, through which approximately 20% of the world’s oil and liquefied natural gas (LNG) typically flows, has emerged as Iran’s most potent strategic asset.
Iran is now aiming to transform the Strait of Hormuz into both a substantial revenue stream and a critical pressure point on the global economy. While threats to close the strait have been made in the past, the current situation suggests a more serious intent, fueled by the tangible impact of disruptions to global trade.
### Disruption and Expanding Ambitions
Shipping through the Strait of Hormuz has been severely hampered by Iranian actions, causing significant turbulence in global energy markets. This has forced nations worldwide to implement emergency measures to secure fuel supplies. According to Dina Esfandiary, Middle East lead at Bloomberg Economics, “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.” This realization has led to a shift in ambitions, with Iran seeking to solidify its leverage.
Washington is keenly aware of this risk. US Secretary of State Marco Rubio has warned that preventing Iran from establishing a tolling system at Hormuz will be a major challenge following the conflict. He emphasized that such a system is “not only is this illegal, it’s unacceptable, it’s dangerous to the world, and it’s important that the world have a plan to confront it.” Foreign ministers from the G7 nations have echoed this sentiment, stressing the “absolute necessity” of maintaining “safe and toll-free freedom of navigation.”
Mojtaba Khamenei, in his first address as Iran’s new supreme leader, signaled the continued importance of leveraging control over the Strait of Hormuz, stating that this leverage “must continue to be used.”
### From Sanctions Relief to Strait Control
Previously, Iran’s demands in negotiations with the US focused on sanctions relief and recognition of its nuclear program. Now, control over the Strait of Hormuz has become a central demand. Iranian lawmakers are currently considering legislation that would require countries utilizing the strait for shipping to pay tolls. An advisor to the supreme leader has even proposed a “new regime for the Strait of Hormuz” post-conflict, allowing Tehran to impose restrictions on adversaries and link access to this vital shipping lane to its geopolitical objectives.
### Legal Challenges and Potential Revenue
James Kraska, a professor of international maritime law at the US Naval War College, argues that imposing transit fees is a violation of international law. He explains that while the Strait of Hormuz is subject to the laws of Iran and Oman within their territorial waters, the right of transit passage applies to all states, permitting unimpeded navigation. The UN Convention on the Law of the Sea (UNCLOS) outlines these rules, and despite neither Iran nor the US being a party to the convention, its principles are widely accepted as customary international law.
Historically, attempts to charge for passage through international straits have been unsuccessful. Denmark’s imposition of fees through the Danish Straits in the 19th century was ultimately abolished by the Copenhagen Convention of 1857.
Despite the legal hurdles, experts estimate the potential revenue from a successful tolling system could rival that of the Suez Canal. Currently, around 20 million barrels of crude oil and oil products transit the Strait of Hormuz daily. A $2 million fee per tanker could generate approximately $20 million per day, or $600 million per month, from oil alone. Including LNG shipments, this figure could exceed $800 million monthly – representing 15%-20% of Iran’s monthly oil export revenue.
### Economic Motivations and Current Practices
The monetization of Hormuz is likely driven by Iran’s economic pressures. Sanctions have severely restricted Iran’s access to global markets, and charging for passage is seen as a relatively “easy” and “low-cost” way to compensate for these losses. Iran is among the most heavily sanctioned countries globally, second only to Russia.
Iran maintains that the Strait of Hormuz remains open, but not unconditionally. Officials state that “non-hostile” vessels may transit, provided they coordinate with Iranian authorities. Ship-tracking data indicates some tankers are now using routes closer to Iran’s coast, with reports suggesting that some operators may be paying for safe passage.
While no country or ship operator has publicly acknowledged paying a fee, shipping intelligence firm Lloyd’s List reported that over 20 vessels have used a new corridor through the strait, with at least two reportedly paying around $2 million for passage. The 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.
Richard Meade, editor in chief of Lloyd’s List, notes that this is already happening and is likely to become more frequent without progress in negotiations, adding that the shipping industry is currently in a state of “paralysis.”
[Learn more about the geopolitical implications of the Strait of Hormuz from the Council on Foreign Relations](https://www.cfr.org/middle-east-and-north-africa/strait-hormuz).
