US-Iran ceasefire: Why Tehran wants to charge ships for crossing the Strait of Hormuz

The hundreds of container ships clustered on either side of the Strait of Hormuz on Wednesday received a broadcast from the Iranian navy that brooked no discussion: any ships trying to pass through the narrow waterway without permission would quickly find themselves at the bottom of the Persian Gulf. The war may be on hold, but the passage is still shut. 

Tehran and Washington last night announced a two-week ceasefire just hours before US President Donald Trump’s declared deadline for Iran to re-open the Strait of Hormuz ran out. 

Negotiators from both sides will meet in Islamabad on Friday to work towards a lasting peace. Tehran had on Monday proposed a 10-point plan that it said would secure a permanent end to the war, which Trump has publicly judged a “workable” basis for talks.

Trump later denied that these 10 points were those that had led to the ceasefire, saying that the conditions for a lasting peace would be hammered out "behind closed doors". 

Read moreHow Pakistan brokered a two-week ceasefire deal between Iran and the US

Key among these 10 points is the apparent formalisation of Tehran’s de facto control of the Strait of Hormuz. Senior Iranian officials told the New York Times that the Islamic republic would impose a roughly $2 million toll on every container ship passing through the reopened waterway. More than 130 ships crossed through the strait every day before the war. 

Proceeds from this levy would be shared with Oman, which sits on the other side of the strait. Officials said that Iran’s share would go towards rebuilding the roads, rails, schools, hospitals and other infrastructure bombarded by the US and Israel since the end of February.

Chokehold

Tehran effectively blocked maritime traffic through the narrow waterway after the US and Israel attacked Iran at the end of February, killing 86-year-old supreme leader Ayatollah Ali Khamenei and a slew of other high-ranking military and political leaders.  

The Strait of Hormuz has become the cornerstone of Iran’s resistance to the US-Israeli assault. Roughly one-fifth of the world’s oil and liquefied natural gas exports pass through the narrow shipping lane.

Days after the US-Israeli war on Iran began, Tehran grabbed that choke point and squeezed. 

Iran’s threat to fire on ships sailing through the strait without Tehran’s express approval has caused what the International Energy Agency says is the most severe supply disruption in the global oil market’s history, leading to soaring fuel prices and fears of wide-reaching economic turmoil. 

Watch moreOil prices fall after ceasefire deal as questions over Hormuz Strait linger

If formalised, this toll would mean the continuation of Iran’s weeks-long practice of charging ships for passage through the strait. Long-running shipping journal Lloyd’s List reported in March that Iran’s Revolutionary Guards had effectively set up a “toll booth” in the strait, escorting vetted ships through the Iranian waters around Larak Island after ensuring they have no connection to Israel, the US or other countries that had aided or supported the war against Iran. 

It’s not clear how many of the dozens of ships that have passed through the strait over the past five weeks were required to pay the fee. A Lloyd’s List analyst last week said that there had been at least two cases of shippers paying Tehran for passage through the strait, and suggested that others may have made the journey free of charge following “diplomatic negotiations”. Countries including China, Malaysia, India and Egypt have all held discussions with Tehran on securing safe passage through the strait.  

A spokesperson for Iran’s Oil, Gas and Petrochemical Products Exporters’ Union told the Financial Times Wednesday that shipping companies would have to pay the Islamic republic a toll in cryptocurrency for every barrel of oil they shipped through the strait.

Iran repositioning 'itself more assertively within global economy'

Zeynab Malakouti, a senior fellow at the Global Peace Institute and research affiliate at National University Singapore’s Middle East Institute, said that Iran was unlikely to give up its effective control over the critical waterway. 

“Control over the strait can serve as a powerful deterrent, as it demonstrates Iran’s ability to disrupt a vital artery of the global economy and thereby exert pressure on multiple states simultaneously,” she said. “When a ceasefire is announced in return for the re-opening of the Strait of Hormuz, likely under a new framework that may include transit tolls, we observe a decline in oil prices and an increase in stock markets. This highlights the critical importance of the strait.”

She said that overseeing traffic through the waterway could not only help Iran rebuild its bombed-out infrastructure, but pull itself out of economic isolation following years of devastating Western and UN sanctions.  

“Throughout this period, many countries have benefited from the stability and accessibility of the strait, while Iran itself has largely remained a passive actor in terms of economic gains,” she said. “In this context, Iran’s increasing control over the strait can be interpreted as an effort to mitigate the impact of sanctions and to reposition itself more assertively within the global economy, using its geostrategic leverage to advance domestic economic development.”

Contrary to international law?

Whether or not such an arrangement would be in line with international law seems dubious. 

Jason Chuah, professor of commercial and maritime law at City St Georges University of London, said that such a regime was fundamentally contrary to the United Nations Convention on the Law of the Sea (UNCLOS) – which Iran is not a party to – and established international practice. 

“Under UNCLOS and international customary law, such a levy flies in the face of the right of transit or innocent passage through natural straits,” he said. “It could set a bad precedent for other parts of the world – including the Strait of Malacca, the Sea of Gibraltar and the Bab El-Mandeb Strait.”

While there are existing international agreements giving countries effective control over crucial waterways, maritime law generally holds that any fees charged must be in exchange for specific services. Chuah pointed to the 1936 Montreux Convention, which gives Turkey a degree of control over the waterways linking the Mediterranean to the Black Sea – including allowing it to limit the passage of military vessels through the sea route.  

“However, it does not permit the imposition of tolls merely for transit, and crucially it rests on a widely accepted multilateral treaty,” he said. “It therefore demonstrates that special regimes can exist, but only where they are internationally agreed and carefully delimited.”

Iran’s proposal that it could jointly exercise control over the Strait of Hormuz with Oman could also set Tehran and Muscat at odds with the Gulf States whose largely commodities-based economies depend heavily on free passage through the waterway. 

“For Iran and Oman, such an arrangement would represent a significant economic and strategic gain. However, it could have substantial implications for the import and export activities of the Gulf Arab states, and may not align with their interests,” Malakouti said.

“From their perspective, an Iran-Oman arrangement would create an asymmetric relationship in which Tehran holds greater leverage, a situation that could be perceived as strategically concerning.”

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Chuah – who also serves as the chairman of the Board of Research at the Maritime Institute of Malaysia think-tank – said that the joint management of the Strait of Malacca by Indonesia, Malaysia and Singapore showed that such arrangements were not unheard of. But he stressed that this was a far cry from the mandatory tariff that Tehran seemed to be suggesting. 

Already reeling from the global oil shock unleashed by Iran’s decision to effectively block the Strait of Hormuz, the wider world is unlikely to respond to any plan granting Tehran permanent control over the crossing with wild enthusiasm.

“Many countries are likely to oppose any arrangement that restricts access or imposes additional conditions, and will instead prefer to uphold the existing legal framework – ‘transit passage’, which guarantees free and open passage through strategic waterways,” Malakouti said. “However, the extent to which such disagreements among states can effectively challenge Iran’s control over the Strait of Hormuz remains uncertain – particularly given Iran’s apparent willingness to enforce its position.”