Hormuz won’t have tolls but transit fees. Can Iran charge for passage?

Every day, massive quantities of crude oil, refined petroleum products and liquefied natural gas moved through the Strait of Hormuz linking the Persian Gulf with global markets.

Any disruption in the strait reverberates across energy markets across the globe.

Now, as the waterway moves toward reopening following months of the US-Iran conflict, US President Donald Trump has declared that Hormuz will remain “permanently toll-free,” while Iranian officials have indicated that commercial vessels may still be required to make payments connected to services provided during transit.

The stakes are enormous. Roughly one-fifth of global petroleum shipments and approximately one-quarter of worldwide liquefied natural gas exports pass through the narrow passageway.

Will a fee or toll need to be paid to cross Hormuz?

A framework agreement between Washington and Tehran has established terms for ending active hostilities and reopening the waterway. Financial markets immediately reacted. Oil prices declined as traders anticipated the gradual restoration of energy flows from Gulf producers.

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Speaking on Sunday, Trump announced that the Strait of Hormuz would reopen and remain free of transit tolls. His comments appeared designed to reassure markets and signal a return to normal maritime operations after months of instability.

However, the following day, Iran presented a more nuanced position. Foreign Ministry spokesman Esmaeil Baghaei stated that Tehran had no intention of imposing direct transit tolls but made clear that vessels could face charges linked to services provided in connection with passage through the strait.

Iran, he said, was “not seeking to levy transit tolls; however, fees will be charged in exchange for the services that are provided.”

While Iranian officials have not fully detailed the nature of those services, environmental monitoring activities have been mentioned among the possible areas for which charges could be collected.

Discussions regarding payments for passage have been developing for months. After the outbreak of conflict and retaliatory actions involving commercial shipping, Iranian officials began publicly discussing financial mechanisms tied to maritime transit.

In March, Tehran indicated that vessels moving through the strait could eventually be required to make payments. By May, authorities had established the Persian Gulf Strait Authority, an organisation tasked with managing what officials described as “safe passage permits.”

Around the same period, Iran and neighbouring Oman reportedly explored frameworks under which payments would be connected to services rendered rather than the simple act of crossing the waterway.

What is the difference between a toll and a fee?

Although the terms are often used interchangeably in everyday conversation, international maritime law treats them very differently.

A toll is generally understood as a compulsory charge imposed solely because a ship wishes to pass through a particular geographic location. In such cases, the vessel is paying for access to a route rather than for a service being delivered.

A service fee operates on an entirely different principle. It is intended to compensate the provider for a specific activity or operational support supplied to the vessel.

Such services may include pilotage assistance, tugboat operations, navigational guidance, lighthouse maintenance, dredging work, emergency response capabilities or vessel traffic management systems.

The distinction may seem technical, but it has major legal implications.

A toll essentially represents revenue generated from controlling access to a strategic location. A service fee is intended to reimburse actual costs associated with maintaining infrastructure, safety systems or operational support.

Economically, the two approaches are also very different. A toll allows a coastal state to extract revenue because it controls a chokepoint through which vessels must travel. A fee, by contrast, is theoretically limited to recovering expenses incurred in providing identifiable services.

What does international maritime law actually say?

The principal legal framework governing international waters is the 1982 United Nations Convention on the Law of the Sea (UNCLOS). UNCLOS contains specific provisions addressing the rights of ships moving through territorial seas and international straits.

One of the most frequently cited provisions in the current debate is Article 26.

The article states that foreign vessels cannot be charged merely because they are passing through territorial waters. The convention allows charges only when they are linked to particular services supplied to those ships.

In practice, this means that a state cannot demand money simply because a vessel crosses a maritime boundary under its jurisdiction. However, if the state provides navigational assistance, rescue capabilities, environmental services or other operational support, it may be permitted to recover the associated costs.

Why is Hormuz different from the Panama Canal or the Suez Canal?

One reason the issue generates confusion is that many major shipping routes already involve payments. Ships routinely pay significant sums to transit the Panama Canal and the Suez Canal. Those charges are widely accepted and generally considered lawful.

The reason lies in the nature of the waterways themselves. The Panama Canal and Suez Canal are man-made structures.

Their operation requires extensive engineering, maintenance, dredging, traffic management and infrastructure investment. Transit charges help fund those activities and compensate for the services provided.

The Strait of Hormuz presents a completely different situation. Unlike the canals, Hormuz is a naturally occurring waterway. Ships have historically moved through it without paying transit charges.

If a state can transform freedom of navigation into a paid service, it could create a precedent affecting international waterways elsewhere.

What is the legal dispute over Transit Passage?

The Strait of Hormuz is generally classified under international law as an international strait. Such waterways are governed by the Transit Passage regime established in Part III of UNCLOS.

Transit Passage provides extensive navigation rights. Commercial ships, oil tankers and military vessels are entitled to move continuously and without interruption through the strait for the purpose of transit.

And coastal states are not permitted to suspend that right. Most maritime powers regard this principle as fundamental to maintaining global trade and naval mobility.

Iran, however, occupies a distinctive legal position. Although Tehran signed UNCLOS in 1982, it never completed the ratification process.

At the time of signing, Iran issued an interpretative declaration arguing that Transit Passage was not automatically part of customary international law but rather a negotiated arrangement applicable only to states that had formally accepted the convention.

Based on that interpretation, Iran argues that Hormuz should be governed by the older doctrine of Innocent Passage.

Under Innocent Passage rules, coastal states possess significantly broader regulatory powers. They can impose restrictions and, under certain circumstances, suspend navigation if they believe their security, peace or public order is threatened.

Iran maintains that ensuring security in the strait requires substantial expenditures involving naval deployments, monitoring systems and environmental oversight. From Tehran's perspective, charges associated with those activities represent legitimate cost recovery rather than unlawful transit tolls.

Is Iran trying to create a new model based on the Turkish Straits?

The Bosporus and Dardanelles operate under the framework of the 1936 Montreux Convention. Under that arrangement, Turkey does not charge vessels for the right to pass through the waterways.

However, Ankara is permitted to collect payments associated with specific activities such as sanitary inspections, navigational support systems and lifesaving services. A plan for a Hormuz fee system would point out that a similar structure could be adapted for the Persian Gulf.

The concept would involve charging vessels for maritime safety, environmental protection, navigation management and related services while avoiding any explicit transit toll. Such an arrangement could potentially provide Iran with a stable revenue stream while allowing officials to argue that they remain within accepted legal boundaries.

Whether other nations accept that interpretation remains uncertain.

What does the reopening of Hormuz mean for markets?

According to the International Energy Agency, more than 14 million barrels per day (bpd) of oil production remains offline due to disruptions associated with the closure of Hormuz. That figure represents roughly 14 per cent of global oil demand.

West Asian producers including Iraq, Kuwait, Saudi Arabia and the United Arab Emirates have all been affected.

Some production facilities can restart relatively quickly. Industry officials indicate that certain Iraqi operations may resume within days of receiving approval. However, a complete recovery is expected to take much longer.

Wood Mackenzie estimates that production from affected fields could return to approximately 70 per cent of previous levels within three months and around 90 per cent within six months. Achieving full restoration would likely require considerably more time.

Refining operations present another challenge. Industry monitor IIR estimated that 3.52 million barrels per day of refining capacity had been shut by early May, representing roughly 3.5 per cent of global refining capacity.

Facilities that were closed as a precaution may return relatively quickly. Sites that suffered physical damage face longer repair timelines.

According to earlier assessments by Vitol Bahrain's head of research, Bader Nooruddin, Gulf refineries could recover to between 90 and 95 per cent of normal capacity within 40 to 60 days.

Repair costs across the region are expected to be substantial. Rystad Energy estimates total reconstruction spending could average around $46 billion, with refining and petrochemical facilities accounting for a significant share because of the complexity of the damage involved.

Several major liquefied natural gas facilities also curtailed or halted operations during the conflict. Restarting LNG production involves a lengthy technical process because facilities must gradually cool equipment to approximately minus 162 degrees Celsius before full operations can resume.

Industry specialists estimate that achieving full LNG production following a restart decision could take roughly two weeks.

Even then, the recovery will not be immediate. Production trains cannot be activated simultaneously and must be brought back online sequentially to avoid operational risks.

QatarEnergy maintained limited operations during the conflict by keeping three LNG trains running to meet demand from Kuwait and Bahrain. However, the company has indicated that Iranian attacks affected around 17 per cent of Qatar's LNG capacity and that some impacts could persist for as long as five years.

Global oil inventories have also been depleted by months of disruption. Rebuilding stockpiles is expected to be a prolonged process that could extend over several years.

As a result, even if ships begin moving freely through Hormuz again, the wider energy system may take far longer to recover fully.

With inputs from agencies