Traffic in the Strait of Hormuz, through which one-fifth of global oil and gas flows once passed, has effectively ground to a halt.
Oil prices are undergoing a frantic rally, intensifying fears of energy price hikes and skyrocketing inflation. With uncertainty hitting an all-time high, prices recorded a violent jump; American WTI soared by +10.20% to $110, while the international benchmark, Brent, followed with an +8% increase to $109, signaling a new wave of dearness threatening the global economy.
Investor nervousness is exacerbated by the US stance, as Trump "washes his hands" of the Strait of Hormuz, passing the buck to Allies regarding oil transport, which has frozen following the US and Israeli attack on Iran on February 28, 2026. Regarding the address, George Efstathopoulos of Fidelity International told CNBC that markets had prepared for a "binary outcome," expecting the President to either signal exit plans from the war or foreshadow further escalation and prolonged uncertainty. "It is clear that right now we seem to be on the second path," he noted. Efstathopoulos expects the speech to further strengthen the risk-off sentiment, as investors wait for uncertainty to recede.
The Strait of Hormuz blocked
Traffic in the Strait of Hormuz, through which one-fifth of global oil and gas flows once passed, has essentially stopped since the war in the Middle East began, sending energy prices soaring in one of the most catastrophic energy crises worldwide.
The movement of tankers through Hormuz is unlikely to resume soon, said Giles Alston, a political risk analyst at Oxford Analytica. "It is becoming increasingly clear that the US position on what you must do to get your oil out and through Hormuz is now something from which Washington has largely 'washed its hands.' This is now something that must be resolved solely by those who transport oil through the Strait," he told CNBC.
The... trap of Larak Island
Iran has quietly created a de facto safe shipping corridor north of Larak Island—off Bandar Abbas—where the Islamic Revolutionary Guard Corps (IRGC) and port authorities inspect every ship before allowing passage. Almost all transits in the last three weeks have bypassed the usual route and moved through the narrow channel north of Larak, near the Iranian coast, suggesting a "controlled access corridor based on permit," according to Windward. All 57 transits recorded since March 13 followed this detour, while almost none used the normal route. Ships have also been observed forming queues north of Larak awaiting permission, while several have been rejected in recent days.
Iran passes bill to collect transit tolls
It is evident that Iran allows passage only to specific ships, prioritizing countries with friendly relations or vessels linked to its own trade. Furthermore, it is worth noting that the Iranian Parliament passed a bill to institutionalize the collection of tolls from ships passing through the Strait in a move that solidifies Tehran's economic control over this key point. Among other things, the bill defines who can use the passage: the US, Israel, and states participating in anti-Iranian sanctions are now prohibited from passing. In case of violation, the Iranian military will strike with missiles.
The measure, which also requires the agreement of other countries in the region, provides for the imposition of fees on transports of energy, commodities, and food. At least two ships paid a transit fee in Chinese yuan. In one instance, the process was conducted through a Chinese shipping services company acting as an intermediary.
In practice, collection had already begun in mid-March, based on Lloyd’s List data, amounting to approximately $2 million per transit. Now, Tehran is institutionalizing the legal basis for a new regime in the region, in cooperation with Oman. However, for countries friendly to Iran, exceptions can be made. Malaysia’s Transport Minister, Anthony Loke Siew Fook, mentioned that his country's tankers are not burdened due to good diplomatic relations, according to Bloomberg. According to the Malaysian Foreign Ministry, seven ships are already passing through the Strait unhindered.
How the new system works
In more detail, the new system operates as follows: Ship managers first contact intermediaries linked to the IRGC and submit detailed information, such as the IMO number, crew names, and final destination. If approved, they receive a transit code and route instructions. Upon entering Iranian waters, authorities request the code via radio, and if valid, an Iranian vessel escorts the ship. Those not approved are rejected.
Despite the difficulty of identifying true ownership, most transits involve ships with links to Iran, Greece, and China, while some from Pakistan and India also appear. Countries such as India, Pakistan, Iraq, Malaysia, and China have reportedly negotiated directly with Tehran. Indian tankers secured safe passage without payment, while Chinese ships passed through coordination between the relevant parties. In one case, an Indian LPG vessel was escorted by Indian warships.
What international maritime law provides
From the perspective of international maritime law, the Strait of Hormuz falls under the "transit passage" regime of the UN Convention on the Law of the Sea (UNCLOS), which guarantees free passage for all ships, including military ones, and explicitly prohibits the imposition of fees, explains the head of legal practice at Grace Consulting Ltd, Ekaterina Orlova.
"Article 38 of UNCLOS clarifies that coastal states can regulate navigation in straits only for reasons of security, protection of the marine environment, and navigation, but not for financial gain through direct transit fees," she says.
In practice, the close proximity of the territorial waters of two states claiming control imposes restrictions, adds Lidings law firm partner Stepan Guzei. "For example, Oman since the late 1980s has placed restrictions on the passage of warships and submarines, which are applied to some extent. A significant part of the defense infrastructure around the strait is located in island areas under Iranian jurisdiction," he reminds.
Legally, states have the ability to control, but the issue is technical legitimacy. The Suez and Panama canals also charge fees, but they are artificial works and the states managing them can set tolls. The Strait of Hormuz is a natural water corridor and falls under international law, not the legislation of coastal states, Orlova emphasizes. Examples show that attempts to impose a financial fee on natural straits often cause diplomatic and legal conflicts, Orlova reports, recalling the Iran-Gulf states dispute in the 1980s.
However, in practice, adherence to international rules is hampered by the fact that neither Iran nor the US has ratified UNCLOS, explains Igor Yushkov, an expert at the Financial University of Russia. This creates additional risks for the stability of the international regime. Kremlin spokesperson Dmitry Peskov stated that the system of rules exists de jure, but de facto is not applied. Analysts agree that Tehran's plan is feasible and the transit fee will likely remain even after the situation stabilizes. "It is not excluded that Oman will participate. By separating entry and exit flows from the Persian Gulf, there can be a distribution of control: one side collecting a fee for passage in one direction, the other in the opposite," says Guzei. This will increase the cost of cargo and freight rates. Given the quantity of resources passing through the strait, the impact will be significant. The US is already examining scenarios where the price of oil reaches $200 per barrel, Bloomberg reports.
The use of strategic reserves may temporarily contain prices, Yushkov notes, but it is not sustainable: reserves will be depleted and prices will continue to rise. The peak target of $200 per barrel is unlikely to be maintained—the final balance is estimated around $130–$140 per barrel, the expert predicts.
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