The end of the era of free navigation is a blow to globalization. But alternative paths are already being prepared in the Region. Among the many uncertainties of the 14-point agreement that consolidates the ceasefire in the Persian Gulf, one element looks like a political mine placed at the end of the Strait of Hormuz.
It is found in the fifth point and states: “The Tehran regime will discuss with Oman to determine the future administration of maritime services in the strait (…), in accordance with international law and the sovereign rights of coastal states.” This formula refers to a move that Iran had already made in May, when the attention of international observers was mainly focused on the price of oil and negotiations in the White House. At that time, the Iranian Revolutionary Guard created an institution called the “Persian Gulf Strait Authority,” with the task of administering this maritime segment. It is not yet clear what this initiative specifically entails.
What is clear is that Iran aims to exert control over that strategic passage, through which until January about a fifth of the world’s supply of crude oil, liquefied natural gas, fertilizers, petroleum, and aluminum passed.
Mohammed Bagher Ghalibaf, Tehran’s chief negotiator and speaker of the Iranian Parliament, said it bluntly: “The Strait of Hormuz will never return to its previous state.” And he added: “Of course, we will demand a fee for the services we will provide.” The idea is that this payment should not be presented as a formal tax, but as compensation for navigation services or for environmental protection of the area. However, the Revolutionary Guard is already demanding that ships register with this Strait Authority and sign a type of insurance, which in practice would be free. This is where the trade exchanges of these days are changing. First, the ships pass through. If they try to pass through without registering, the Americans react by striking Iranian positions.
It’s a minefield, both politically and in a strictly military sense. Especially since, for the sixty days of negotiations before the American attack on Iran, shipping to and from the Persian Gulf was free.
Therefore, a control of Tehran and the imposition of a tariff would become a symbol of the loss of the principle on which Washington has based its policy for decades: freedom of navigation in the world’s most strategic straits and keeping the costs of global trade under control. However, it is not an easy game for Iran. This is because Tehran is trying to quietly convince its allies in this confrontation, starting with Oman, which controls the southern coast of the Strait of Hormuz along about 33 kilometers. In recent days, the government of Muscat has informed European representatives that Hormuz will not return to its previous state, according to sources cited by Bloomberg, as ships in transit may be forced to pay passage fees.
Also on Tuesday, the Sultanate of Oman officially announced that it would discuss with Tehran how to manage the waters of the strait and the associated costs. For a small state like Oman, participating in the revenues that this mechanism could bring for decades, potentially estimated at tens of billions of dollars per year, is an extremely tempting opportunity.
Today, Sultan Haitham bin Tariq will discuss the issue in Paris with French President Emmanuel Macron. Of course, European governments, major Gulf countries and major global shipping companies remain strongly opposed to any tariffs on Hormuz. Such a precedent could prompt similar demands in other strategic points of the world, such as the Strait of Malacca, the Taiwan Strait or the Bering Strait.
In that case, globalization would become slower and much more costly. However, Iran may have already achieved what it aimed for. It even risks nurturing an exaggerated perception of its power over Hormuz.
If it imposes tariffs or claims control over the strait, Gulf states will accelerate their search for alternative routes even more. Abu Dhabi is already working to double the capacity of the pipeline that carries oil to ports outside the Strait of Hormuz to 3.7 million barrels per day (by the end of 2027). For their part, shipping companies are already experimenting with trucking cargo to ports outside the Persian Gulf. The risk is that imposing a tariff or claiming control will turn into a temporary victory for Iran. This is also warned by Iran’s National Security Council, in an analysis published in the journal Foreign Affairs. The message is clear: If the war is to be won, Iran cannot afford the luxury of losing the peace.