Who controls the Strait of Hormuz? — Counting the Cost

[0:14] I'm Scott McClain. This is Counting the Cost on Al Jazeera. Your look at the world of business [0:18] and economics. From tolls to blockades, the U.S. says it's blocking traffic through Iranian ports [0:24] in the Strait of Hormuz. But Iran insists it controls who has access and on what terms. [0:30] So who holds real leverage? The era of free navigation is under pressure, [0:35] and the global trading system could be at risk. Could the Iran war reshape energy routes and [0:41] challenge the dollar's dominance? And who pays the price? Well, now the U.S. is the one shutting [0:52] the Strait of Hormuz, even as Donald Trump was calling for it to reopen just a few days earlier. [0:58] The U.S. president said ships entering or leaving Iranian ports will be stopped by the American [1:04] Navy after talks between Iran and Washington fell apart. The Navy will also target ships that were [1:10] paying tolls to Tehran, which has restricted traffic in the waterway in response to U.S.-Israeli strikes. [1:16] But this isn't just about a blockade. Iran is tightening its grip on the Strait, demanding the [1:22] right to impose tolls on ships passing through one of the world's most critical trade routes. [1:28] The risk for the global economy is pretty clear. Higher prices, rising inflation, and a hit to growth. [1:34] The ripple effects go beyond energy and trade flows, challenging the dominance of the U.S. dollar [1:40] in global trade. Ferdia Carr reports. The announcement of ceasefire talks between the [1:46] U.S. and Iran last week, Boyd hopes that the closure of the narrow Strait of Hormuz would not be [1:52] protracted. In a major reversal of those hopes, President Donald Trump announced the U.S. would [1:59] be imposing its own blockade on the Strait as talks in Islamabad faltered. From late April 13th, [2:06] the U.S. Navy plans to prevent all ships entering or leaving Iranian ports only. That is, in part, [2:13] a response to reports that Iran is charging tolls as high as $2 million for tankers to transit the [2:20] Strait of Hormuz. Iran's blockade of the Strait is already strangling Gulf shipments, [2:26] which account for around 20 percent of global oil and gas supplies. Trump has accused Iran of [2:33] reneging on its pledge to open the Strait during ceasefire talks. [2:38] We've been very nice. We haven't ripped down too many bridges. We did one [2:42] only because they broke their word. They broke their promise. And remember, [2:47] their promise was that they were going to open the Hormuz Strait. They didn't do it. They lied. [2:55] A U.S. blockade on Iranian oil shipments will likely further increase energy prices and [3:01] worsen knock-on effects on the global economy. Iran says it's been exporting around 1.5 million [3:08] barrels per day despite the war. Most of that goes to China, who bought an estimated 80 percent of [3:15] Iranian oil exports last year. Cutting Iranian oil shipments off will increase bidding pressure [3:22] on alternate suppliers, pushing global prices even higher. On social media, Iran's parliament speaker [3:29] warned Americans would soon be nostalgic for the already high four to five dollar per gallon gas [3:35] prices. Several countries are sounding the alarm that Iran would undermine the very principle of [3:42] freedom of navigation by charging ships to pass the Strait of Hormuz. Shippers must weigh the risk of [3:48] potentially triggering U.S. and EU sanctions by paying money to the Iran Revolutionary Guards Corps, [3:55] who control the Strait and much of Iran's economy. Lloyd's List reports at least two ships have made [4:03] payments to pass the Strait in Chinese Yuan. Analysts say that's part of a wider attempt to loosen the [4:10] dominance of the U.S. dollar in oil and gas trading. Iran has made control of the Strait a key demand [4:17] in ceasefire negotiations, a scenario that could allow it to continue its toll regime for the long term. [4:24] The U.S. says it won't accept that. As the two sides ratchet up pressure for control of the waterway, [4:32] the uncertain security situation in the Gulf means more volatility for energy markets. [4:38] Fridi Akar, Al Jazeera for Counting the Cost. [4:41] Well, both Iran and the U.S. are being accused of violating the principle of freedom of navigation of [4:47] their seas with their actions in the Gulf. It is codified in Article 87 of the UN Convention on the Law of the [4:53] the Sea, though the principle is much older than that. It says civilian vessels from any sovereign [4:59] nation cannot be impeded by another in international waters. Now, it doesn't apply to man-made waterways, [5:05] most notably Egypt's Suez Canal and the Panama Canal, which generate billions in revenue each year. [5:11] But there have been exceptions made for some international waterways. For example, [5:16] under a 1936 convention, Turkey charges a tonnage fee for passage to the Black Sea. But that's to cover [5:23] operational costs, not to generate revenue. To discuss this further, we're joined by our panel of experts. [5:30] From Canberra, we're joined by Donald Rothwell, a professor of international law at the Australian [5:34] National University with a focus on the law of the sea. In Edinburgh, we're joined by Frederick Schneider, [5:40] an economist and a non-resident senior fellow at the Middle East Council on Global Affairs. And in [5:46] London, Neil Shearing. He is the group chief economist at Capital Economics and an associate fellow [5:52] at the Global Economy and Finance Program at Chatham House. Thank you all for being on the program [5:57] here. Donald, to start with you, I wonder, do you think this U.S. blockade of the strait will be [6:02] effective? And maybe more importantly, is it legal under international law? [6:06] Well, in terms of effectiveness, we really just need to see how that plays out over the course of [6:12] the next few days. There are reports that we're receiving at the moment that some vessels have [6:18] been passing through the strait. But the really key aspect of the blockade is, of course, to blockade [6:24] vessels moving in and out of Iranian ports. In terms of the legality, there's really no question that, [6:31] yes, this is a legitimate way in which the United States can seek to use and utilize the laws of naval [6:40] warfare. Blockade is a well-established and understood principle that has been applied for many [6:46] centuries and is currently reflected in international law. And, of course, the United States and Iran [6:51] are belligerents in this conflict. So the United States can legitimately engage in an act of blockade. [6:56] Okay. Frederick, the price of Brent crude has gone up 50 percent since this conflict began. Now that [7:05] this U.S. blockade is in place, how much worse could things get? [7:08] Well, it's very difficult to say because the situation changes from day to day. Right now, [7:19] we're in this stage where we don't know whether the blockade will hold. We've seen from the U.S. [7:27] administration many, many different signals. And we've seen the oil price react accordingly. So [7:32] it's been hovering around $100, but it's been quite a roller coaster. You've heard Trump say, [7:40] you know, we will invade Harg Island. We will bomb the Iranian oil terminals. We will open up the [7:46] strait with the finest navy in the world. We will be escorting ships. We will demine the strait. Then, [7:54] all of a sudden, it's, you know, allies, if you want your oil, you have to get it on your own. And [8:02] then the other day, we had this tweet, you know, open up the effing strait, you crazy bastards. And now [8:09] we're at this blockade stage. So it's really, really difficult to see where this is going. I think [8:16] one thing is quite clear. This is probably not going to last very long. Because, well, A, it's [8:24] unclear whether the U.S. will follow through with it, given the many changes in policy. B, China has [8:33] already signaled that they're not very happy with the blockade, because most of the oil that is being [8:39] blocked is destined for China. And we've heard, I think, the Ministry of Minister of Defense said [8:46] that the U.S. should not meddle in Chinese affairs. So I don't think they would take that lightly. So [8:53] it's a very volatile situation. And I don't think it will last very long in either direction. And [8:58] there's a good potential for escalation. There's also a lot of effort to deescalate. But we will have [9:06] to see where this is going. Yeah. And President Trump also believes that this is not going to [9:10] last very long. I know this because he did an interview on Fox Business on Monday. And in that [9:15] same interview, he was also asked about the price of oil and gas. And I want to play that clip for you. [9:19] Watch. Do you believe the price of oil and gas will be lower before the midterm elections? [9:25] I hope so. I mean, I think so. It could be. It could be the same or maybe a little bit higher. But [9:31] it should be around the same. I think this won't be that much longer. [9:34] Neil, could be the same, could be higher, could be lower. The president doesn't seem very certain [9:42] of anything here. Are you more certain than the president is? [9:45] Well, goodness me, economists get a hard time for not giving a strong view, right? [9:51] You've got three different views there. Could be higher, could be lower, could be the same. [9:53] Yeah. Look, my take on this is that it all depends on, you know, really for how long the [10:00] straight remains closed. It carries, as we know, about one quarter of the world's seaborne oil. [10:07] And it's not just oil. It's natural gas as well. A fifth of the world's seaborne natural gas. [10:13] And I think at this stage, quite a lot, there's being about maybe as much as a third to a half [10:18] could be rerouted through the east-west pipeline and other pipelines in Saudi and UAE. [10:24] So some is clearly getting out through other waterways. And that's helping to cushion the [10:33] rise in prices. If this conflict comes to an end this month, if the straight starts to be reopened, [10:40] then I think we'll start to see global crude and natural gas prices start to edge down. We could get [10:46] kind of $80 a barrel plausibly by the end of this year. If it doesn't, and the straight remains [10:51] closed, then I think we've got another leg up coming. It's not difficult to run scenarios where [10:58] you get to kind of $130, $140 a barrel on crude with a more protracted closure of the straights. [11:06] Yeah. It's hard not to have empathy for vague answers here because there's a lot of moving parts [11:10] here. There's a lot of unpredictability. On the one hand, of course, you have the U.S. naval blockade. [11:15] You also have the Iranians who are wanting to charge tolls for boats to transit through the [11:21] strait. And I just want to show our viewers a map which sort of maybe illustrates some of the [11:27] confusion here. So this is the Strait of Hormuz. On the south part of that map, you can see that's [11:32] Omani territorial waters. On the northern part of the strait, that is Iranian territorial waters. So, [11:38] Donald, my question for you is, help me understand as a layperson, why is it that Iran cannot [11:45] charge tolls for ships to pass through its own territorial waters? [11:49] There's a critical principle here, and that is that within what are called international [11:55] straits, and the Strait of Hormuz is an international strait, as indeed is the [12:00] Strait of Gibraltar, the Dover Strait, vessels cannot be what's called hampered in the way in which [12:06] they engage in navigation, the way in which they actually exercise the right of transit passage. [12:10] Even if it's Iranian territorial water? Yes, yes. And that's the accepted [12:16] principle that every state has applied by. And most importantly, that was not a principle [12:22] that Iran really contested on the 27th of February before the conflict actually commenced. [12:29] So there's no acceptance of the imposition of so-called tolls on vessels passing through an [12:35] international strait, even when those vessels are passing through, as in this case, Iranian territorial [12:41] borders. OK, so as I mentioned earlier, there are some places where there are tolls. I mentioned [12:48] the Suez Canal in Egypt, the Panama Canal makes sense. They're manmade. But you also have natural [12:55] straits like the Dardanelles and the Bosphorus in Turkey, which are also charging fees. So my question [13:01] for you, Donald, is is there not a little bit of leeway here for there to maybe be a legal exception for Iran? [13:08] So I think the first point to make is that the Black Sea straits that you referred to [13:13] are really quite historic straits under which Turkey has really inherited a legal framework, [13:19] which allows for a limited imposition of certain fees. I should also observe that in Australia, [13:26] it's possible for Australia to impose a fee upon vessels passing through the Torres Strait. [13:32] But that's a navigational fee which relates to the requirement for all vessels to compulsory take [13:39] on board a pilot, which has been endorsed by the International Maritime Organization, [13:44] the major international body responsible for the safety of international navigation. So yes, [13:50] you're right. There are some exceptions, but they're quite narrow exceptions. And we certainly don't see [13:55] this generally apply in the major international shipping straits of the world. [13:59] Yeah. And just to clarify for our viewers, what Donald means by pilot there is someone who is not [14:04] the ship's captain, who boards the ship, who is local to the area, knows the waterway well, [14:09] and basically drives the ship through whatever waterway that we're talking about. So obviously, [14:15] that applies to Australia. But is it possible that Iran could say maybe make the same argument to say, [14:20] look, there are lots of sea mines here. It's a dangerous area. We know where the safe passage is. [14:28] You'll have to take an Iranian pilot on board your ship. [14:31] That's certainly a legal argument and an economic and political argument that the Iranians could [14:37] seek to make. And I think we need to distinguish between the imposition of tolls over the last few [14:42] weeks during the middle of the armed conflict, as opposed to the type of scenario that you're suggesting, [14:47] which would be applicable at the end of the conflict. So yes, I think that the Iranians [14:52] might have some capacity to make that argument. But whether the international community and the [14:57] international shipping community would be prepared to accept that remains to be seen. [15:01] Frederick, there are reports that Iran could charge one dollar per barrel of oil as a toll, [15:07] or two million dollars for the entire ship. And I'm interested to know, what do you think would be [15:13] more costly to the end price of gas or oil or whatever it may be? Those fees or the cost of [15:22] insurance for ships that are going through a very dangerous, potentially mined waterway? [15:30] Well, I mean, it's a complex question. So first of all, one question would be how much of that one [15:35] dollar per barrel would actually end up at the consumer. So that's what economists would call the [15:40] pass through rate for oil. That's actually pretty high because of the price elasticity of demand. [15:47] So so much of that would be borne by the consumer. But I mean, technically, one dollar per barrel is [15:54] not that much. So that would be an increase of about one to one point five percent of the actual price [16:02] of the barrel. And then you have the petrol prices that are determined not only by the cost of the oil, [16:09] but also you've got exercise taxes, which can be pretty high, especially in Europe. So so the actual [16:15] effect of a one dollar toll fee or whatever you want to call it on the price of, let's say, at the [16:23] pump for the consumer would be relatively small compared to the situation right now where we've got [16:34] more than 10 million barrels per day basically blocked up. That would certainly be the lower [16:44] short term cost. The question is whether insurance would be more expensive. Exactly. So so insurance [16:53] might be more. It depends a bit on the security arrangements after an eventual ceasefire. You know, [17:01] hopefully we will get to a more relaxed situation. But you're right. Insurance is a factor. [17:10] Then you've got knock on effects, you know, rerouting, traffic, also resourcing [17:19] oil because, you know, certain suppliers and customers might be [17:25] uneasy with the fact that, you know, Iran has control over the strait. So all of this is a factor. [17:33] But short term, I guess, for for example, for the GCC states, economically speaking, it would make sense [17:42] to probably pay that one dollar per barrel to just get the oil flowing and the gas about. But the problem [17:50] is what are you buying into then? Right. Are you accepting the dominance of Iran over the [17:57] strait for the long term? And I think these ramifications are eventually what what dominate [18:06] the thinking. And it's not not necessarily the short term cost or price. Yeah, fair enough. Neil, [18:13] of the tolls that we know have been paid, they have been paid in Chinese yuan, Chinese currency. And [18:20] we also know that the Iranians have said that they are considering future tolls to be paid in their [18:25] local currency, the Iranian rial. And I wonder realistically, how much could this potentially [18:32] erode the U.S. dollars status as the global reserve currency? Well, I think one of the things we can be [18:39] reasonably sure of, we've talked a lot, haven't we, about the kind of uncertainty surrounding this [18:45] this conflict and the consequences. One of the things I'm reasonably sure about is that it's not [18:50] going to fundamentally undermine the dollar's role, central role in the global economy and indeed, [18:55] for that matter, global commodity markets in the immediate future. And part of the reason is just [19:01] the sheer numbers involved, the size and scale of energy flows, particularly between Iran and China [19:11] compared to total global energy flows, and compared to total cross border transactions in the global [19:18] economy is tiny. To put this in perspective, trade between the Gulf and China accounts for 3% of total [19:27] global trade. And so even if all of that was denominated somehow in renminbi, it's not going [19:32] to have much of an impact on the dollar's role. The dollar was involved in 90%, 9-0% across border [19:39] transactions in 2025. So that includes trade and global capital flows, capital account transactions. [19:46] So yes, I'm sure that the renminbi is going to be increasingly used in global trade. Yes, I'm sure that [19:52] some countries that look askance at what's happening in the U.S. and kind of institutional [19:57] degradation there will seek to try and diversify away from the dollar. But does that really mean [20:04] that the dollar's position at the heart of the global economy is going to be fundamentally challenged? [20:07] I don't think so, not in the short term. Can I just ask one very brief point of clarification. On [20:13] Sunday, as President Trump was announcing his blockade, we saw the value of the dollar go up, [20:19] actually. And I wonder if that's because you think that the dollar is still a reliable safe haven or [20:23] because oil is priced in U.S. dollars and the price of oil is going to go up. [20:29] No, it's much more the former, I think. I think one of the things that we have learned [20:34] through the course of this conflict, and there's lots of questioning of the dollar's role as a safe [20:39] haven within the global economy at the back end of last year and through the tariff war [20:44] after Liberation Day, actually, it's functioned pretty much as a safe haven through the course of [20:50] this conflict. We've seen it appreciated along with the Swiss franc as an act like a traditional safe [20:56] haven, even when commodities like gold have not and U.S. treasuries have not. So I think the one [21:03] lesson that we can take from one of the lessons we can take from this conflict is that the dollar's [21:08] role as a safe haven currency is still intact. Donald, do you think that other countries around [21:15] the world might look at this whole situation like, say, I don't know, China in the in the [21:20] South with the South China Sea and say, hey, Iran is charging a toll or wants to charge a toll for the [21:26] Strait of Hormuz. A quarter of the world's shipping traffic goes through the South China Sea. [21:31] We could charge a toll for using that waterway. Do you think that that's likely? [21:37] Yes. And of course, lawyers are very concerned about precedents being set, as indeed are diplomats. [21:43] So one of the things that I've been quite concerned about is that if the Iranian practice of seeking [21:49] to charge tolls gains some momentum, gains some level of acceptability following the end of this [21:56] conflict, well then, as you pointed out, there inevitably will be other countries who'll start [22:01] to think about their options. So a prominent example is that in the Straits of Malacca and Singapore, [22:07] which are very significant international straits, of course, the three literal states there, [22:13] Indonesia, Singapore and Malaysia have for many decades long been concerned about what they see [22:18] are the burdens that they have to bear in terms of the significant amounts of ships that congest their [22:24] waterways, the environmental issues and concerns that they face. But they have been aware of the fact that [22:31] they cannot impose a toll because of the legal principles that we've been talking about. So [22:36] I think we will see that if there is some momentum behind an Iranian toll regime and some level of [22:43] acceptance of that, that other countries will start to ask the same question. Well, why can't we impose tolls? [22:48] Frederick, I'm going to ask you to summarize here. President Trump talks a lot about how much oil the [22:55] U.S. has, excuse me, but obviously the price of getting American oil, Canadian oil out of the ground [23:02] is higher than it is, say, here in the Gulf. I wonder if you think there's a scenario where maybe oil prices [23:08] could come down organically just because you're going to have more American, more Canadian producers say, [23:13] hey, we can make this profitable now that the price of oil is, say, 80, 90, 100, whatever it is, [23:19] per barrel. Is that a realistic possibility here? Certainly. Once the price goes up, [23:26] there's a lot of supply that was previously not profitable that is now profitable. And we do see [23:34] developments in the U.S., but also in other countries, to exploit what's called non-conventional [23:41] reserves. So shale and offshore, which is more expensive. And that will probably be pursued. We saw that [23:58] play out earlier in the 2000s and 2010s. And then that was cut short by the price slump of oil. But, yeah, [24:09] we see some signs of revival. There's also some political will behind that. But also places like [24:16] China, for example. China has been very interested in becoming self-sufficient in terms of energy. [24:24] And what probably many people don't know is China actually produces a lot of oil and gas, [24:29] actually more so than, for example, the UAE. It's just that it's a huge country. So that is still [24:36] about only a quarter of what they need. But, of course, there are offshore options that become [24:46] more economically viable now. But that will, of course, take a lot of time to get online. [24:51] Yeah. Neil. So it doesn't have an immediate effect. Yeah, certainly. Neil, look, [24:56] we're talking so much about the uncertainty of the situation and the uncertainty in the world. There's [25:01] no shortage of it these days. But everybody looks at gold as sort of this hedge in times of uncertainty. [25:07] But help us understand why the price of gold has actually slumped a little bit as we've seen [25:13] things get even more dicey in the Strait of Hormuz. I think it's partly to do with what was happening [25:19] to the price of gold before the conflict. So throughout the course of 2025, we saw quite a big, [25:24] really sharp run up in the price of gold initially because justified on the basis that central banks [25:32] were diversifying their official holdings of reserves away from the dollar and more into gold, [25:39] countries, particularly like China, trying to sanction proof that their official holdings of [25:44] dollars and official reserves. So shifting out of the dollar into gold, that justified an initial [25:50] rise in the price of gold. Then we got retail investors piling in, and the price of gold really [25:56] shot up over the second half of last year, such that it started to look, on most measures, like a [26:03] bubble. And in many respects, started to behave like a risky asset. In days in the markets where we had [26:09] risk on, the price of gold went up. And in days when it was risk off, retail investors will pull back [26:16] and the price would go down. So the behaviour of gold through this conflict and this crisis, [26:23] I think, has a lot to do with the behaviour of gold before the crisis and the fact that we had this [26:28] enormous run up in the price of gold, really reflecting the development of a bubble. And to some extent, [26:34] that bubble started to lose some air through the conflict. Donald, I'm going to give the last word to [26:40] you. Do you think that this blockade and, you know, the whole situation with Iran wanting to charge a [26:47] toll on the Strait of Hormuz, is this going to be a blip on the historical radar? Or is this really [26:52] going to reshape global shipping well into the future? Well, I certainly think that we won't see [27:00] a return to the status quo in terms of the Strait of Hormuz. So we won't see a return to the situation as it [27:06] existed on the 27th of February before hostilities commenced. But whether or not it has repercussions [27:13] and creates a precedent for global shipping in the way that you suggest, I think very much remains to [27:19] be seen. And one critical issue here is that Iran is not a party to the UN Convention on the Law of the [27:25] Sea, as indeed is not the United States. All of the other major players who have international straits [27:32] within their waters are parties to the UN Convention on the Law of the Sea, which importantly contains [27:37] compulsory dispute settlement mechanisms. So if other countries were to begin to unilaterally impose [27:44] tolls, I think they would very quickly find that their position is being challenged before [27:49] international courts and tribunals. Gentlemen, I wish we had more time today. Donald Rothwell, [27:54] Frederick Schneider and Neil Shearing, thank you all for being here. We appreciate it. [27:59] And that's our show for this week. You can get in touch with us on X. My handle is at Scott McLean. [28:04] And make sure to use the hashtag AJCTC when you do, or drop us an email, countingthecost at [28:10] aljazeera.net. That's our address. And there's more for you online at aljazeera.com slash ctc. [28:16] That'll take you straight to our page, which has individual reports, links and entire episodes [28:20] for you to catch up on. That's it for this edition of Counting the Cost. I'm Scott McLean [28:25] from the whole team here in Doha. Thank you so much for joining us. The news is next here on Al Jazeera.