The Strait That Broke the System: Hormuz, Sovereignty and the Remaking of the Maritime Order
For half a century, the world's most critical energy chokepoint has been governed by a legal framework designed by those who do not live near it, enforced by a navy that does not depend on it, and structured to ensure that the state bearing all the risk receives none of the reward. The war in Iran has made that arrangement untenable. What comes next will define the maritime order for a generation.
April 2026
The Waterway the World Cannot Do Without
Twenty-one miles at its narrowest point. Through this gap between the Iranian coast to the north and the Omani and Emirati shores to the south, roughly twenty percent of the world's oil and liquefied natural gas has flowed every day for decades. Not twenty percent of a category. Twenty percent of global seaborne energy trade in its entirety, the fuel that powers the factories of China, the households of Japan, the petrochemical plants of South Korea, the electricity grids of India. When the Strait of Hormuz closes, the world does not find an alternative. There is no alternative at scale. The Saudi East-West Pipeline, the only significant bypass route, can carry at most seven million barrels per day. Pre-war traffic through Hormuz was twenty million. The arithmetic of insubstitutability is not a negotiating position. It is a physical fact.
Since the United States and Israel launched Operation Epic Fury on February 28, 2026, that physical fact has been weaponised for the first time in the waterway's history. Iran closed the Strait. The world's largest navy, assembled in the Persian Gulf in the greatest concentration of American airpower since the 2003 Iraq invasion, has not reopened it. Five weeks later, Brent crude is trading above one hundred dollars per barrel. European governments are proposing windfall taxes on energy companies. Malaysia has ordered civil servants to work from home to conserve fuel. Two US Air Force aircraft have been shot down over Iranian territory. And Iran has passed legislation to formalise a toll regime for the Strait of Hormuz, the first in modern maritime history.
These events have forced a question that the existing international order was designed never to have to answer: does Iran have the right to charge for access to waters that are legally its own?
How the Rules Were Written
The United Nations Convention on the Law of the Sea, known as UNCLOS, was negotiated between 1973 and 1982. It is often described as the constitution of the oceans, a multilateral achievement that brought order to the world's maritime commons. This description is accurate as far as it goes. What it omits is the politics of how that order was constructed, and whose interests it was built to serve.
The transit passage provisions of UNCLOS, contained in Articles 37 to 44, were not the product of neutral legal reasoning. They were the product of hard negotiation led primarily by the United States, the United Kingdom, and the other major maritime powers, whose central preoccupation was not the rights of coastal states but the operational freedom of their own navies. The United States in particular required guaranteed passage for its nuclear submarines through straits like Hormuz, Gibraltar, and Malacca. Under the alternative legal regime, innocent passage, submarines would have been required to surface and give advance notice, exposing their positions. The transit passage regime was designed, among other purposes, to prevent that requirement from applying.
The result was a framework that stripped coastal states of one of the most fundamental attributes of sovereignty: the right to set conditions for entry into their own territorial waters. UNCLOS Article 38 grants all ships and aircraft, commercial and military, the right of transit passage through international straits without interruption, condition, or fee. Article 26 prohibits charges by reason only of passage. The framework applies to the Strait of Hormuz because Iran's and Oman's territorial waters together span its entire twenty-one mile width, leaving no high-seas corridor through which vessels could pass without entering coastal state territory.
The states whose territory includes these strategic waterways were not absent from the negotiations. They argued, consistently and without success, for a framework that gave coastal states more regulatory authority and the right to derive some benefit from the traffic flowing through their waters. They were outmanoeuvred. The great maritime powers, whose strategic and commercial interests required unimpeded passage, ensured that the treaty reflected those interests. Iran, which signed UNCLOS in 1982 but never ratified it, has maintained for four decades that the transit passage regime as applied to Hormuz is not binding upon it and reflects a legal framework it never accepted.
The states on whose territory these straits happen to be located had fundamentally different interests. They were outmanoeuvred. The treaty reflected the priorities of those powerful enough to shape it.
The legal distinction at the core of the existing framework, between natural waterways governed by the transit passage regime and artificial waterways like the Suez and Panama canals where fees are legally permitted, deserves more scrutiny than it has received. Iran's parliamentary defenders have cited Suez and Panama as precedents for a Hormuz toll. Maritime law experts have correctly pointed out that the comparison fails: Suez and Panama are human-built canals maintained by sovereign infrastructure investment, while Hormuz is a natural strait. Fees on Suez and Panama compensate for the provision of infrastructure that would not exist without sovereign investment.
This distinction is legally accurate. It is also philosophically peculiar. Property law in virtually every other domain of international practice has long since moved beyond the labour theory of value as the basis of ownership. Saudi Arabia did not create its oil. Norway did not manufacture the gas in its continental shelf. Yet both states exercise sovereign authority over those resources and charge whatever the market will bear for access to them. The 1962 UN Declaration on Permanent Sovereignty over Natural Resources, won by developing countries against Western resistance, establishes that natural resources belong to the state in whose territory they are found, regardless of whether that state created them. Nowhere else in international law is the distinction between naturally occurring and artificially created assets used to strip a state of sovereign rights over what lies within its territory. Its application to international straits is a specific, convenient exception that happens to benefit the states whose navies need those straits to be open.
The Burden Without the Benefit
Consider what it means to be Iran, the coastal state of the Strait of Hormuz, under the existing legal framework.
Iran bears the security risk of being the chokepoint state. The vessels of every country that has ever threatened, sanctioned, or attacked Iran pass through its territorial waters as a matter of right. American aircraft carriers transited Hormuz on their way to wars in Iraq and Afghanistan. Israeli-linked vessels transit Hormuz carrying cargo that funds a military Iran regards as existential. Iran has no legal right under the existing framework to question, delay, or charge any of them. The right of transit passage is absolute and non-discriminatory.
Iran bears the political risk of being permanently identified as the entity that controls the world's most critical energy chokepoint. This identification has made Iran the permanent target of coercive pressure specifically designed to prevent it from exercising any control over Hormuz. The entire US military presence in the Persian Gulf, the Fifth Fleet headquartered in Bahrain, the carrier strike groups, the forward air bases in Qatar, Saudi Arabia and Jordan, exists primarily to ensure that Iran cannot exercise the rights its geographic position would otherwise confer. Iran is, in effect, required to host the permanent military force that prevents it from exercising sovereignty in its own territorial waters.
And Iran receives nothing in return. No transit fees. No recognition of its administrative role. No compensation for the security burden its position creates. No share of the enormous economic value generated by the traffic its geography makes possible.
The perverse consequence of this arrangement is that Iran's rational calculus has always pointed toward weaponising Hormuz rather than commercialising it. An open, freely transiting Hormuz generates revenue for every other party and nothing for Iran. A closed Hormuz generates leverage, the only currency the existing framework leaves Iran with. The legal system designed to prevent Iran from profiting from its geographic position has made it more rational for Iran to hold that position hostage than to turn it into a productive asset.
The legal system designed to prevent Iran from profiting from its geographic position has made it more rational to hold it hostage than to turn it into a productive asset. The world has created the conditions for exactly the crisis it was trying to prevent.
This is not a coincidence. It is a structural consequence of a framework that imposed costs and risks on Iran without providing any mechanism for compensation or accommodation. The question that should have been asked forty years ago, and was never asked because American power made it unnecessary, is what a fair arrangement for the Strait of Hormuz would actually look like.
What Iran Is Actually Proposing
Iran's toll regime, operational since early March and now codified in domestic legislation, is in its current wartime form – crude and coercive by design in a time of conflict. Vessels pay approximately two million dollars per transit, settled in Chinese yuan through the CIPS payment system that bypasses US correspondent banking. Access is granted or denied on political grounds, with ships linked to the United States, Israel and their active military supporters excluded entirely. The Islamic Revolutionary Guard Corps administers the system through a vetting process that requires cargo manifests, crew lists, ownership details and destination information.
This wartime version of the toll regime is not the model Iran is proposing for the post-war order. What Iran has articulated, through its recent offer to Europe, its parliamentary legislation framing the toll as a security and environmental service charge, and its joint protocol negotiation with Oman, is something more sophisticated: the conversion of Hormuz from an ungoverned transit corridor into a managed waterway with Iran as the recognised sovereign authority, fee structures analogous to those of established canal systems, and bilateral agreements with user states that formalise access in exchange for recognition of Iranian authority.
The Islamabad summit's consortium proposal, forwarded to Washington before the talks began, gestures toward a Suez Canal model: a multilateral management body with fee structures, in which Iran's sovereign position is recognised and institutionalised rather than contested. Iran's offer to Europe goes further, inviting bilateral agreements that would give European states access in exchange for, at minimum, implicit recognition of Iranian authority over the Strait. The currency architecture, yuan-denominated payments through CIPS, is not a preference but a necessity under the current sanctions regime, and could in principle be renegotiated as part of a broader settlement that addressed Iran's sanctions exposure.
Taken together, these moves sketch the outline of what a legitimate Hormuz governance framework might look like: Iranian sovereign authority over the waterway acknowledged and compensated, fee structures set by reference to vessel size and cargo volume at rates analogous to those of the Suez and Panama systems, a non-discrimination requirement that prevents political exclusion once fees are paid, and a multilateral dispute resolution mechanism for fee disputes and access questions. The Suez Canal Authority earns between seven hundred million and eight hundred million dollars monthly and Egypt's sovereignty over it is uncontested. A comparable Hormuz Authority, earning revenues commensurate with the waterway's traffic (which would be in the region of $25b annually) and strategic value, would give Iran what it has always been denied: a direct economic stake in keeping the Strait open.
The Dollar Question
The financial dimension of Iran's Hormuz regime has received less attention than it deserves, in part because its full implications are easier to perceive over years than over weeks. The petrodollar system, in place since 1974 when Saudi Arabia agreed to denominate all oil sales in US dollars in exchange for American security guarantees, rests on a single foundational assumption: that the United States can guarantee safe passage for dollar-denominated oil shipments anywhere on earth. That guarantee was the invisible architecture beneath fifty years of dollar hegemony. Countries needed dollars to buy energy, which meant they held dollar reserves, which meant they invested in US Treasury bonds, which meant the United States could sustain its fiscal position at interest rates lower than any other nation could command.
The Strait of Hormuz closure has exposed that assumption as contingent rather than structural. The United States assembled the largest concentration of military power in the region since 2003 and could not force the Strait open. The guarantee that underpinned the petrodollar system has been tested in the most direct possible way and found to be limited. The gap between the rhetorical claim, that American power guarantees free navigation, and the operational reality, that Iran controls transit and charges for it in yuan, cannot be papered over by any number of Truth Social posts or primetime addresses.
Every yuan payment through CIPS for Hormuz transit is a transaction that bypasses the dollar settlement infrastructure entirely. These transactions are not visible to the US Treasury, cannot be sanctioned through correspondent banking, and do not generate the dollar demand that the petrodollar system requires. China, which processes roughly half of all payments in the emerging Hormuz toll system, has spent fifteen years building precisely this alternative infrastructure. The Cross-Border Interbank Payment System processed the equivalent of two hundred and forty-five trillion dollars in yuan-denominated transactions in 2025, a forty-three percent increase year on year. The Hormuz crisis did not create this infrastructure, rather it activated it in the most visible way possible, at the world's most strategically sensitive energy chokepoint.
Whilst the dollar will not collapse overnight as a result of changes in Hormuz What the Hormuz crisis has demonstrated is that the system is no longer unassailable, that alternative payment infrastructure now exists and functions, and that the states bearing the costs of dollar hegemony have begun to act on their interest in reducing those costs.
The guarantee that underpinned the petrodollar system has been tested in the most direct possible way and found to be limited. The gap between the rhetorical claim and the operational reality cannot be papered over.
A Fairer Framework
The case for a reformed Hormuz governance framework does not need to rest on sympathy for Iran's government, or even on the legal arguments Iran has advanced, which are stated as a claim to unrestricted sovereign control. It rests on a simpler and more durable proposition: the existing framework is structurally unfair, and structurally unfair arrangements produce structural instability. The world has now experienced five weeks of that instability. The IEA has called it the largest oil supply shock in the history of the global market. The ECB has warned of recession risk for Germany and Italy. Food prices are rising globally because fertiliser passes through Hormuz. This is the cost of a framework that gave Iran no stake in keeping the Strait open.
A reformed framework would rest on three principles derived from how international law has handled analogous situations elsewhere.
The first is sovereign recognition. Iran's geographic position gives it a legitimate claim to administrative authority over the Strait, analogous to Egypt's authority over the Suez Canal after 1956. The international community's attempt to contest that claim by military means has failed. Recognition is not a concession to coercion. It is an acknowledgment of a reality that existed before the current war, was simply never accommodated, and must be accommodated now.
The second is equitable compensation. If the transit passage regime is to continue imposing costs and risks on Iran as the chokepoint state, those costs and risks must be offset by revenue. The Suez model provides the template: a canal authority under sovereign control, with fee structures set transparently, applied without discrimination to all users who pay, and generating revenue commensurate with the strategic value of the waterway. At Suez-equivalent fee rates applied to Hormuz traffic volumes, the revenue would exceed twenty billion dollars annually, transforming Iran's economic position more effectively than any sanctions relief package ever negotiated.
The third is partnership. Access to the Strait should be governed by the quality of a state's relationship with Iran, not by the diktat of third parties. States that recognise Iranian authority, engage in good-faith trade, and do not participate in military action against Iran can expect passage on agreed terms. States that impose sanctions on Iran, provide bases for strikes on its territory, or actively support campaigns against it should expect to be treated accordingly. This is not an anomalous principle. It is how sovereign states relate to one another across every other domain of international affairs. The United States applies precisely this logic when it imposes sanctions on Iranian shipping, Iranian banks and Iranian entities without accepting any non-discrimination obligation toward Iran. Saudi Arabia does not sell oil to Israel. Every sovereign state chooses its partners. The suggestion that Iran alone, uniquely among nations, must guarantee access regardless of how it is treated by the states demanding that access is not a legal principle. It is a continuation of the coercive asymmetry that the old framework embodied.
Iran's wartime practice already reflects the partnership model. Spain, which refused to allow US military aircraft to use its bases or airspace for strikes on Iran, received free passage as a direct consequence of that political stance. China, which does not enforce US sanctions on Iran, transits freely. India negotiates bilaterally from a position of genuine non-alignment. Pakistan secures passage in exchange for mediation. The emerging Hormuz governance system rewards those who deal fairly with Iran and withholds passage from those who do not. This is not an aberration to be corrected. It is a sovereign prerogative to be recognised.
These three principles together constitute a framework that would serve the interests not only of Iran but of the global south more broadly. The Strait of Hormuz is not unique in being a natural feature of strategic value that happens to be located in a developing country and governed by rules written by those who do not live there. The principle that natural resources and geographic features must be available to the world at no cost to their owners, while man-made infrastructure can be monetised, has been applied consistently in international law in ways that transfer value from resource-rich developing states to resource-poor developed ones. The challenge to that principle at Hormuz is a challenge that resonates well beyond the Persian Gulf.
What Stands in the Way
The reformed framework described above is not technically complex. It does not require new international institutions. It does not require Iran to abandon its nuclear programme or disband the IRGC. It requires only that the international community acknowledge what is already true: that Iran exercises de facto authority over the Strait of Hormuz, that this authority is not going to be reversed by military means, and that a stable post-war order requires accommodating it within a legitimate framework that serves the interests of all parties.
What stands in the way is forty years of American policy built on the premise that Iranian control of Hormuz is a problem to be prevented rather than a reality to be managed. That premise has shaped the legal framework, the military deployment, the sanctions architecture, and the diplomatic approach to every Iran-related negotiation since 1979. It has also, as the current crisis demonstrates, produced exactly the outcome it was designed to prevent: Iran exercising decisive control over Hormuz in ways the United States cannot reverse.
The United States will resist any post-war framework that acknowledges Iranian sovereignty over the Strait, because such acknowledgment would require revising the legal and strategic assumptions that have underpinned American power in the Persian Gulf for half a century. This resistance is understandable for their perspective of desiring absolute dominance. It is also, in the current environment, futile. Iran's parliament has passed the toll legislation. Iran's parliament and Oman are drafting a bilateral monitoring protocol that would give the two coastal states joint administrative authority over every vessel entering or leaving the Persian Gulf. Iran is negotiating bilateral access agreements with dozens of countries. The institutional facts of the new Hormuz order are being created, one agreement at a time, whether the United States participates in that process or not.
The question is not whether a new order emerges, but whether it emerges through a coherent framework that makes the partnership model explicit and predictable, or through a proliferating series of ad hoc bilateral arrangements whose terms remain opaque. The second outcome is not necessarily worse for Iran in the short term, but it creates instability that eventually damages all parties. A formalised partnership framework, with transparent criteria for access, published fee structures and an agreed process for resolving bilateral relationships, gives the global trading system the predictability it needs while preserving Iran's sovereign right to determine the terms of those partnerships. The Suez Canal Authority earns its revenue from traffic volumes, not from wartime premiums, because its terms are stable and known. An institutionalised Hormuz authority, operating on partnership principles, could do the same.
The Precedent and What It Means
The reform of Hormuz governance would not be an isolated event. It would establish a precedent with implications for every other natural waterway where a developing state bears the burden of being the chokepoint state for global trade without receiving compensation for that burden.
The Strait of Malacca, through which forty percent of global trade passes between the Pacific and Indian Oceans, borders Malaysia, Singapore and Indonesia. The Bab el-Mandeb, now being explicitly threatened by Iran, borders Yemen, Djibouti and Eritrea. The Turkish Straits, the Bosphorus and Dardanelles, are already governed by the 1936 Montreux Convention, which provides Turkey with limited administrative authority but not fee collection rights commensurate with the traffic volume. Each of these waterways is in the territory of states that were not the primary architects of the legal frameworks governing them.
The establishment of a legitimate, compensated governance framework for Hormuz would create a model that other chokepoint states could point to in seeking similar recognition. This is precisely what the drafters of the transit passage regime were trying to prevent: the disaggregation of the global commons into a series of sovereign toll roads. The anxiety is understandable. It is also, at this point, beside the point. The alternative to a negotiated, rules-based framework for chokepoint governance is not the frictionless transit regime of the pre-war world. That regime is already gone. The alternative is Iranian discretionary control, exercised through IRGC escorts and yuan-denominated payments, with no rules and no predictability.
The world faces a choice between a new framework that acknowledges the legitimate sovereign interests of chokepoint states while preserving predictable access, and the continuation of a system that has demonstrably failed on its own terms. The war in Iran has made the costs of the status quo impossible to ignore. What remains to be seen is whether those who benefited from the old order are prepared to accept a new one before the costs of resistance become greater still.
About this analysis
This analysis draws on open-source reporting, legal scholarship and geopolitical analysis produced during the first five weeks of Operation Epic Fury. Legal citations include UNCLOS Articles 26, 37-44, the 1949 ICJ Corfu Channel Case, the 1962 UN Declaration on Permanent Sovereignty over Natural Resources, and the 1936 Montreux Convention. Economic figures draw on reporting by Bloomberg, Lloyd's List Intelligence, the IEA, the ECB and the Atlantic Council GeoEconomics Centre. The analytical conclusions are the authors' own.