A narrow water body between Iran and Oman is home to almost 20% of the world’s oil reserves. For decades, navigation through the Strait of Hormuz has been considered a fait accompli, protected by international law and ensured by global maritime presence.
But this reality is being put to test.
Recent indications are that Iran may be charging vessels millions of dollars to pass through the strait, even as it has denied the move. While the indications are yet to be confirmed, the uncertainty has become the news.
The indications are based on reports from intelligence sources and media outlets suggesting that vessels may be paying up to $2 million to pass through the strait safely. At the same time, lawmakers in Iran have floated plans to pass legislation on charging vessels a toll.
Between denial and leverage
Admitting to charging vessels a toll on an international water body could be legally challenged and could even be used by the United States as a reason for military action against Iran.
Denying it, even as vessels are being charged, gives Iran leverage without crossing a legal line.
In practice, this would mean that vessels operate through a controlled environment under the supervision of Iran’s naval forces. The access here is shaped more by negotiations rather than law.
Law, war, and the limits of enforcement
The United Nations Convention on the Law of the Sea (UNCLOS) states that international straits must remain free. Countries cannot impose tolls merely due to the passage of vessels through these routes. Iran has signed but is yet to ratify UNCLOS. However, most legal experts believe that these rules are binding under customary international law.
The problem with law is that it assumes a state of stability.
In a war situation, the ability of law to enforce itself is questionable. The United States has reportedly targeted Iranian naval forces but has yet to ensure safe passage of vessels. The European Union has condemned Iran’s move but has yet to get actively involved in the war.
It’s in this space that Iran’s move must be understood.
Iran doesn’t have to win the war, doesn’t have to control the strait. It merely has to ensure that it’s risky enough to negotiate.
When disruption becomes a business model
The rationale behind the toll’s imposition is quite intriguing.
Earlier, the cost of war insurance for oil tankers passing through the Strait of Hormuz was not high. However, with the tensions rising, the cost has increased manifold, going up to millions of dollars per voyage. In addition to this, freight rates are also rising.
Under such a scenario, a payment of $2 million for safe passage might not seem like extortion but a cost-benefit analysis. Ship owners are not being forced to make a choice between paying and not paying. They are being forced to make a choice between being certain and being unsure.
The potential revenue is also enormous. If there are hundreds of oil tankers passing through the Strait of Hormuz every week, a limited system of charging money would fetch billions of dollars. More importantly, Iran has turned geography into economic leverage.
Iran might not be able to defeat a superior military force in a war. However, by being at the centre of a vital oil route, Iran has the power to impact the world economy in ways that go beyond the battlefield.
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India’s position: access without alignment
The situation poses a threat and an opportunity for India.
India is a major importer of energy products passing through the Strait of Hormuz. It is not just oil but also LNG, LPG, and fertilizers. Any prolonged conflict would directly impact the country’s inflation rates.
At the same time, India has not taken a confrontational stance.
Instead of joining the military coalitions or directly criticizing the move, New Delhi has preferred to engage in bilateral relationships. This diplomatic effort has reportedly ensured the passage of some of the Indian ships through the strait, with Iranian supervision.
The rationale for the move is part of a larger strategy. Access is more valuable than choosing sides.
But the move is also part of a larger shift in the system.
Access to critical global infrastructure is not just governed by international norms. Geopolitics and negotiations play a role in the process.
The debate is not just about the toll being charged by Iran.
But also about the fact that such a situation is even possible.
The Strait of Hormuz has always been regarded as a ‘neutral waterway of international maritime commerce.’ Today, the strait is fast becoming a ‘strategic tool for extracting economic value, conveying political messages, and altering the regional and international balances of power.’ Even if the toll is not in place, the conditions for its implementation are a reality.
And in a world where control is increasingly exercised through disruption rather than dominance, the conditions for the toll might be more important.
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