Iran’s Proposal to Collect Tolls in the Strait of Hormuz Violates Trade Norms

FRANKFURT, Germany (AP) — 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.

Yet collecting tolls in the strait would violate a basic and enduring principle of international maritime trade: freedom of peaceful navigation. It's an ancient idea that was codified by the United Nations' Convention on the Law of the Sea, which took effect in 1994.

Opening the strait would save the global economy from supply constraints that have pushed energy and fertilizer prices sharply higher since the war began on Feb. 28. But agreeing to Iranian toll-collecting would cement the Islamic Republic's control over the strait through which 20% of the world's oil is shipped — and enrich the military against whom the war was launched.

U.S. President Donald Trump has made reopening the strait a priority. But the White House said Wednesday he is opposed to tolls, and analysts say the Gulf's oil producers are, too.

Analysts say they have seen no change in traffic through the strait since the ceasefire was announced, despite claims to the contrary from the White House.

Here are things to know about Iran's proposal and the international law with which it collides.

Iran had already begun charging vessels passing through the strait 

After the U.S. and Israel launched the war, Iran immediately exercised leverage by blocking the strait with attacks — and threats of attacks — on ships, making passage too risky. The disruption caused immediate shortages in some Asian countries highly dependent on the region's energy, sent gasoline prices higher in the U.S. and Europe, and threatened global economic growth.

Iran then began vetting vessels in a murky scheme dubbed the “tollbooth” by shipping analysts.

The ships were told to divert from the middle of the strait in Iranian and Omani territorial waters and instead detour around Iran's Larak Island. After delivering detailed information on crew and cargo to intermediaries of Iran's Islamic Revolutionary Guards Corps, some vessels were allowed to proceed — and at least two reportedly paid the equivalent of $2 million in Chinese yuan.

The Law of the Sea Treaty guarantees passage to peaceful ships 

Iran's 10-point proposal for ending the war includes a provision allowing it and Oman to charge ships passing through the Strait of Hormuz, according to a regional official who spoke on condition of anonymity to discuss negotiations they were directly involved in. The official said Iran would use the money it raised for reconstruction.

But the Law of the Sea Treaty's Article 17 guarantees a right of “innocent passage” for ships that do not threaten the coastal states. So allowing Iran and Oman to start charging for passage through the strait would set a dangerous precedent, experts said.

Freedom of navigation in the world’s seas has been a fundamental right for hundreds of years, founded on “the idea that the sea doesn’t belong to anyone,” said Philippe Delebecque, a professor and maritime law expert at Paris’ Sorbonne University.

“Freedom of navigation has always been recognized, including specifically in straits," he said. The concern is if the Strait of Hormuz could be closed, then why not the Strait of Gibraltar between the Mediterranean and the Atlantic, or the Strait of Malacca off Indonesia?

He called that scenario "the end of an international society."

Neither Iran or the U.S. have ratified the Law of the Sea Treaty 

While 172 countries have ratified the U.N. convention, Iran and the United States are among those that have not.

“Not having ratified the convention doesn’t give (Iran) total freedom of action in the Strait of Hormuz,” said Julien Raynaut, who heads the French Association of Maritime Law, a trade group. “It remains subject to international law and notably this customary right of passage.”

An Iranian tollbooth could lead China to conclude that it could restrict movement in the Taiwan Strait, Raynaut said.

Oman and Iran may face diplomatic pushback to adhere to the convention, said Constantinos Yiallourides, a senior research fellow at the British Institute of International and Comparative Law.

Free passage “is in the interest of everyone,” he said. “We all want to get the best products at the best prices.”

The global economy needs the Strait of Hormuz reopened 

Some economists say that, from a strictly financial standpoint, the world would barely notice the additional costs from any tolling in the Strait of Hormuz.

For example, a $2 million toll on a large tanker carrying 2 million barrels of oil amounts to $1-per-barrel increase on that ship's oil.

“The burden does not fall on global consumers, but overwhelmingly on the Gulf states that supply the oil that transits the strait,” wrote the Bruegel think tank in Brussels. It said the world economy would instantly benefit from the reopening the strait — returning 20% of the world's oil to the market and sending prices lower.

Plus, by lowering oil prices, it would eliminate a multibillion-dollar geopolitical windfall for Russia, whose oil is suddenly in greater demand despite sanctions.

The international price of oil has jumped from around $72 per barrel before the war to as high as $118 on March 31. On Monday, Brent crude, the international benchmark, traded at $94.55, down sharply after news of the two-week ceasefire.

The Gulf's oil producers are leery of Iranian control of the strait 

Saudi Arabia, the biggest Gulf producer, welcomed the ceasefire deal between the U.S. and Iran but called for keeping the Strait of Hormuz open “without any restrictions.”

Gulf countries have had to shut down some 12 million barrels per day in crude production because there's no viable way around the strait for much of their oil. The two pipelines that bypass it aren't big enough to make up for all of the lost oil, and building new pipelines would take years.

Given the downsides of the tollbooth proposal, the Gulf states would only agree to it if all other options looked much worse, Bruegel said.

A major objection in the West is that the toll would likely benefit the Islamic Revolutionary Guard Corps, which is responsible for Iran's ballistic missile program, suppresses domestic political opposition, and is listed as a terrorist organization by the U.S. and the European Union.

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Leicester reported from Paris. Michael Biesecker in Washington contributed to this report.