Can Iran’s proposal to start charging ships passing via the Strait of Hormuz open the Pandora’s box? While Iran has been charging ships passing through the Strait of Hormuz an unofficial toll of USD 1 dollar per barrel, it has now come up with a parliamentary proposal which calls for charging a transit fee from ships wanting to pass through the Strait of Hormuz in its national currency rial.
Earlier, Tehran had also proposed a 10-point plan that it said would secure a permanent end to the war which included an apparent formalisation of Iran’s de facto control over the Strait. India is in a wait-andwatch mode over the developments and many government officials are viewing this as Iran’s bargaining tactics.
Issuing an X post, the consulate general of the Islamic Republic of Iran in Mumbai quoted the head of Iran’s Parliament National Security Commission as stating that under a parliamentary proposal, transit fees through the Strait of Hormuz would be paid in Iran’s national currency, the rial. “In the Strategic Action Plan for Security and Sustainable Development of the Strait of Hormuz, the government may, if necessary, sign an agreement with Oman; though this is a secondary provision, not the core of the plan,” the consulate general wrote.
While India’s Ministry of External Affairs has said that there have been no discussions with Iran on charging such a transit fee, insiders say that they are in a wait and watch mode, monitoring how other countries react to the proposal. “We are closely watching the situation. Under international law, ships have all the right to pass through such straits under innocent passage. This proposal may be a bargaining chip for Iran but we need to see what other parties have to say about it. We have seen several propositions change throughout the 40-day war,” a senior government official told The Sunday Guardian.
However, ship owners and foreign policy experts have expressed concerns over what such a move could do for the maritime economy framework, adding that it can also open the Pandora’s box with other countries raising similar demands. Before the war began, as many as 130 ships would pass through the Strait of Hormuz which sees the movement of 20% of the world’s energy supplies.
Foreign policy observers point out that levying such a transit fee would be against the United Nations Convention on the Law of the Sea (UNCLOS) which Iran is not a party to. The UNCLOS is a comprehensive international treaty, which establishes a legal framework for all ocean space, maritime activities, and resource management.
Dr Shikha Gupta, former faculty at the Sushma Swaraj Institute of Foreign Services told The Sunday Guardian, “There are complexities involved and the UNCLOS governs the movement of ships in territorial waters of countries and holds the structure of movement in waters. So, this poses a question to the UN too but the rules-based order has gone for a toss not since February 2026 but as early as 2022 during the Russia-Ukraine crisis.” “There are other straits as well like the Strait of Malacca and other trade routes—similar demands can come up there too. Along with water, there are airways and roadways. So, what kind of reaction this demand will evoke remains to be seen. But there are several instances where we have seen the rules-based order going for a toss even before the 2022 Russia-Ukraine crisis,” she said.
Ship owners and shipping experts say that if Oman too decides to support Iran in this demand and enters an agreement to start charging ships passing through the Strait of Hormuz, the move may alter the entire economic framework especially in the energy sector and the way shipping happens as the Strait of Hormuz cannot be totally avoided by ship owners.
Warning of an increase in prices of petrol, diesel, LPG and LNG among other products, S.M. Halbe, CEO of the Maritime Association of Shipowners, Shipmanagers and Agents (MASSA) told The Sunday Guardian that any such monetisation of movement of ships in international waters may lead to an increase in prices of energy products (a large section of which reaches India via the Strait of Hormuz) as any additional charges would eventually be passed on to the consumers. “Shipping is the core of world trade and 90% of goods movement happens via the seas. If any nation is able to monetise such a movement via its waters, the market will adjust itself accordingly and the additional charges will eventually be passed on to the consumer. Innocent passage of ships through such natural chokepoints is supposed to be free and any such fee will add to the cost of products being traded. So, not only the prices of LPG, LNG, petrol and diesel will rise but also the freight and fuelling charges. On the other hand, the countries exporting products like grains, etc to Iran may also increase prices of products that they sell to Iran (and Oman),” he said.
Kalbe added that such a transit fee could also greatly harm the other Gulf nations including Saudi Arabia, Kuwait, Bahrain, Iraq and UAE, who would be forced to reduce the prices of their energy products to retain their customers. He echoed Gupta’s views that such a transit fee would set a bad precedent. “There are other straits across the world. There is the Strait of Malacca, Sunda Strait, Lombok Strait, etc and countries managing these straits could also raise similar demands to monetise the waterways especially those which have to maintain the straits. The Strait of Hormuz is not a strait that requires a lot of maintenance by Iran,” he said.
Kalbe said that while countries like Saudi Arabia and UAE will try to devise other routes for shipping their energy exports, the Strait of Hormuz cannot be totally bypassed by shipowners and this gives more leverage to Iran.
Even during the 40-day war between US/Israel and Iran, Saudi Arabia—the top-most oil producer of the OPEC (Organisation of the Petroleum Exporting Countries)—sold millions of barrels of oil via an alternative route: bringing the oil to the Yanbu port on its western coast via its eastwest pipeline and routing the same to purchasers via the Red Sea. The UAE used the Fujairah port for routing its oil exports to Asia.
“Such alternative routes can come up but the Strait of Hormuz cannot be avoided completely. Iran has that strategic advantage and if a transit fee is levied to pass through the Strait, oil dealers will now calculate the cost of transportation via such alternative routes and the Strait of Hormuz. If transporting oil via such alternative routes is more expensive than transporting the same via the Strait of Hormuz, dealers would obviously opt for the latter. So, these Gulf nations will have to factor this in and reduce the prices of their oil products to retain customers,” Kalbe said.
At present, Iran is already charging USD1 per barrel from each ship and has charged as high as USD2 million from some very large gas carriers (VLGCs). A seafarer, who was recently aboard a Chinese ship, told The Sunday Guardian that the Iranian Revolutionary Guard Corps (IRGC) have been charging USD 1 per oil barrel for safe passage from all ships: “This toll is being charged from all ships including those from friendly nations.”
Experts say that this move will also improve the position of the rial which has been under severe stress for years now due to intense US sanctions, high inflation and regional conflict. The Iranian rial dropped to record lows of approximately 1.42 million to 1.6 million per USD in early 2026. The rapid devaluation ignited nationwide protests and crippled household purchasing power.
K.P. Fabian, renowned author and former Indian ambassador to Qatar, told The Sunday Guardian that the move would help improve the position of the Iranian rial to a certain extent. “If you are a shipowner, you will have to buy the rials and then make the payment to the Iranians. So, one will pay foreign currency to get the rial. This will certainly strengthen the position of the rial but what it means is that at the end of the day, Iran will get more foreign currency,” he said.
