The Strait of Hormuz Tolling: A Threat to Global Trade and Freedom of Navigation

The Iran war may be sparking a domino effect that could ultimately kill the centuries-old concept of “freedom of the seas.” Concerns about de facto tolling on key waterways are growing, with shipping companies and analysts warning that other nations will soon follow suit. This would create new economic burdens for global trade and signal a seismic shift in international maritime law.

The concept of freedom of navigation has been enshrined in international law since the aftermath of World War I. Woodrow Wilson’s “Fourteen Points” statement famously insisted that all nations should have “absolute freedom of navigation.” Today, this principle is carried forward through the U.N. Convention on the Law of the Seas.

The proposed fee structure for traversing the Strait of Hormuz could generate close to $20 billion annually. This figure may seem astronomical, but it’s not unfathomable given the lucrative nature of international trade. Iran seeks to capitalize on its strategic location and assert control over one of the world’s most critical chokepoints. Once one country imposes fees on a strait, others will inevitably follow suit.

Shipping companies, insurance firms, and nations alike must adapt to a reality where tolls become an integral part of global trade. The implications are far-reaching: higher costs for consumers, increased inflation, and potentially even more significant economic burdens on nations with limited resources. This could exacerbate existing economic disparities between developed and developing countries.

The trend reflects the broader shift towards regionalism and control over strategic resources. As Michelle Brouhard, head of policy and geopolitical risk for Kpler energy intelligence firm, noted, “the post-World War II order is burning to the ground.” The rise of nationalism and protectionism has been a hallmark of recent years, with global powers prioritizing their own interests over international cooperation.

The Strait of Malacca, which connects Asia’s busiest ports, is often cited as a comparable example. However, analysts warn that any fee structure imposed in Hormuz will be significantly more substantial than the nominal fees levied at Malacca. This could set a precedent for other nations to follow suit, further eroding the concept of freedom of navigation.

Some argue that Iran’s demand for tolls is an attempt to negotiate better economic terms with the West, particularly regarding sanctions relief. However, others see this as a sign of things to come: a new world order where countries exploit strategic resources to gain leverage over their neighbors and trading partners. The Gulf Cooperation Council (GCC) may opt to pay regular payments to Iran instead of implementing a per-vessel fee system, but this would still mark a significant departure from the traditional concept of freedom of navigation.

In recent years, we’ve seen the world move towards more restrictive policies on shipping lanes. Indonesia and Malaysia have publicly flirted with tolling the Strait of Malacca, while Morocco has considered imposing fees at the Strait of Gibraltar. As tensions rise between global powers, it’s increasingly clear that the age-old principle of freedom of navigation is no longer tenable.

The irony lies in how this trend reflects a broader shift towards protectionism and nationalism. Even proponents of free trade acknowledge that the current system no longer serves the world as it once did. In a world increasingly characterized by hostilities and rivalries, perhaps freedom of navigation is indeed a relic of the past.

A new era of tolling on global shipping lanes could exacerbate existing economic disparities and create fresh challenges for nations seeking to assert control over strategic resources. As we move towards a more fragmented world order, one thing is clear: the allure of profits over freedom has never been greater – but at what cost?