Iran proposes tolls in Strait of Hormuz, violating trade norms

To end the war with the United States and Israel, Iran is demanding the right to collect tolls in the Strait of Hormuz as a precondition for reopening the waterway vital to world oil supplies. However, collecting tolls in the strait would violate a basic principle of international maritime trade: freedom of peaceful navigation, as codified by the United Nations' Convention on the Law of the Sea.

Opening the strait would alleviate global economic pressures caused by supply constraints, but agreeing to Iranian toll-collecting would solidify the Islamic Republic's control over a crucial shipping route through which 20% of the world's oil is transported. U.S. President Donald Trump has prioritized reopening the strait but has opposed tolls, a sentiment echoed by Gulf oil producers.

Iran has already begun charging vessels passing through the strait, implementing a scheme that has been described as a "tollbooth" by shipping analysts. Ships were directed to divert from the middle of the strait and provide detailed information to intermediaries of Iran's Islamic Revolutionary Guards Corps, with at least two vessels reportedly paying significant fees.

Iran's proposal includes a provision allowing it and Oman to charge ships, with the funds purportedly earmarked for reconstruction. However, experts warn that this could set a dangerous precedent, undermining the right of innocent passage guaranteed by international law. The implications extend beyond the Strait of Hormuz, as such a move could embolden other nations to impose similar restrictions in strategic waterways.

The Gulf states, particularly Saudi Arabia, have expressed concerns over Iranian control of the strait, emphasizing the need for unrestricted passage. Economists suggest that while the tolls may not significantly impact global oil prices, they would disproportionately affect Gulf states, which supply the oil that transits the strait. The potential benefits of reopening the strait could also diminish a geopolitical windfall for Russia, whose oil has gained demand amid sanctions.

What to watch: The response of Gulf states to Iran's toll proposal and any potential negotiations regarding the reopening of the Strait of Hormuz.