Strait of Hormuz Economic Calculus: Is Paying Iran's Transit Fees Cheaper Than a Blockade?

Eleven weeks since the Iran–US war erupted, the Strait of Hormuz remains blockaded to maritime traffic, inflicting heavy losses on the global economy. Iran's Islamic Revolutionary Guard Corps (IRGC) is tightening its grip on this strategic waterway, while the US naval blockade of Iranian ports has failed to reopen the strait.

Before the war, between 120 and 140 vessels passed through the strait daily, roughly half of them oil tankers carrying a total of about 20 million barrels of crude. Now, only a few ships that have negotiated with the IRGC are permitted to cross. On May 13, Iran announced it had coordinated 26 vessels through the Strait of Hormuz in 24 hours, two days after establishing the Persian Gulf Strait Authority (PGSA) to provide updates on strait operations.

Since a temporary ceasefire between the US and Iran was announced in April, Tehran has moved to formalize a transit fee mechanism for vessels passing through this strategic chokepoint. According to reports, Iran has collected up to $2 million per ship for passage rights since the war began. Although opposing nations decry the practice as illegal, this fee might still be cheaper than the total costs the strait blockade inflicts each day.

About 20.3 million barrels of oil per day once transited the Strait of Hormuz in peacetime, accounting for nearly 27% of global seaborne oil trade, with the bulk flowing to Asian markets. Global liquefied natural gas (LNG) trade has also been severely impacted. Just before the war erupted, Brent crude closed at $72.48 per barrel. After Iran shut the strait on March 4 and began attacking vessels attempting to cross, traffic ground to a halt, stranding some 2,000 ships at both ends of the waterway.

In terms of lost oil revenue, the daily damage amounts to $114.8 billion. Some 10 billion cubic feet of LNG per day also once traversed the strait, worth an additional $7.8 billion. Since the blockade, less than 4% of peacetime traffic has passed through the Strait of Hormuz, including vessels cleared by Iranian authorities—excluding submarine fleets moving by illegally disabling tracking devices.

For the hundreds of ships stuck in the Persian Gulf with thousands of crew members aboard, anchorage costs are enormous, including crew salaries, loan repayments, maintenance and management, plus skyrocketing war risk insurance premiums. Experts argue that many will find paying up to $2 million to Iran worthwhile from a pure cost perspective.

“There is no doubt that paying Iran is cheaper than facing a sustained blockade because a stranded tanker is hemorrhaging money,” says Nader Habibi, an Iranian-American economist. However, he notes that “it makes economic sense but is politically unfeasible. Companies are under pressure from US sanctions and are not allowed to strike deals with Iran.”

Aniseh Tabrizi, a senior fellow at Chatham House, suggests the nature of the conflict has shifted: “From war to economic warfare, trying to pressure one side into concessions.” She argues that “economics alone will not be the driver to change calculations or break away from current positions” and that Iran and the US need to reach a diplomatic compromise.

Under international law, natural waterways like the Strait of Hormuz enjoy freedom of transit, prohibiting states from imposing transit fees. However, services such as security control, inspections, and insurance may be charged. Economist Mohammad Reza Farzanegan argues Iran could justify a transit fee or contribution mechanism based on services as payment for maintaining a safe passage, similar to Turkey’s practice on the Bosporus Strait. But unlike the Bosporus, which lies entirely within Turkish territorial waters, the Strait of Hormuz passes through the territorial waters of Iran and Oman, with parts extending to the UAE, complicating any agreement.

Iran’s newly formed PGSA has published a new map of Hormuz stretching from Kuh-e Mubarak in Iran to south of Fujairah (UAE). Farzanegan contends that “regional cooperation with Iran is the most practical path” and a feasible deal could include a joint maritime authority, shared surveillance, emergency coordination, and service-based contributions. Meanwhile, Nader Habibi believes a regional agreement is unlikely “unless Iran shares transit fees under a pact involving all concerned states.”