Iran's proposal to tax ships for 'safe passage' through the Strait of Hormuz is a calculated move to formalize its control over the world's most critical oil chokepoint.
This initiative comes as Iran has manufactured a scarcity of safety. Since late February 2026, its Islamic Revolutionary Guard Corps (IRGC) has effectively throttled traffic, forcing insurers to cancel coverage or dramatically raise war-risk premiums. The International Energy Agency (IEA) has labeled the situation the largest supply shock in history. In this context, Iran is positioning itself to sell the solution—safe passage—to a problem it created.
The causal chain is clear. First, the IRGC's de facto blockade created extreme risk. Second, insurers and shipping lines responded by pricing this risk, adding surcharges that made passage expensive and selective. Third, with a price now effectively established for transit, Iran's proposed bill aims to institutionalize this payment, converting a chaotic market premium into a state-controlled revenue stream.
However, this plan faces a significant legal hurdle: the UN Convention on the Law of the Sea (UNCLOS). Article 26 of the treaty prohibits coastal states from charging fees merely for passage through their territorial waters. To circumvent this, Iran will likely frame the charge not as a toll but as a fee for 'specific services rendered', such as mandatory escorts or pilotage. This legal framing is crucial, as it attempts to legitimize the fee under international law.
The market impact is substantial. War-risk premiums alone have already added between $0.40 and $1.40 per barrel to shipping costs. If Iran imposes a hypothetical 3% toll based on cargo value (at $110/bbl oil), that would add another $3.30 per barrel. Together, these costs could create a durable floor of nearly $5 per barrel, locking in higher energy prices globally.
Ultimately, Iran is attempting to convert its geopolitical leverage into a direct financial gain. While a straightforward 'toll' is legally problematic, a mandatory 'service fee' achieves the same economic outcome. It establishes a new, permanent cost for transiting the Strait of Hormuz until credible, insured safe passage can be fully restored.
- Glossary
- UNCLOS: The United Nations Convention on the Law of the Sea is an international treaty that establishes a legal framework for all marine and maritime activities.
- War-Risk Premium: An additional charge applied by insurers to cover vessels traveling through regions considered to have a high risk of war, piracy, or terrorism.
- VLCC (Very Large Crude Carrier): The largest class of oil tankers, capable of carrying approximately 2 million barrels of oil.