How a 'Hormuz Fee' Could Work
A regional fee would institutionalize the kind of positive-sum diplomacy that can prevent further disruptions in the Strait of Hormuz.
By Esfandyar Batmanghelidj and Mehran Haghirian
This week Iran resumed attacks on commercial vessels passing through the Strait of Hormuz, targeting ships attempting to transit through a southern channel established by Oman in coordination with the International Maritime Organization and with the encouragement of the United States. The attacks have further weakened the already fragile Memorandum of Understanding signed between the U.S. and Iran on June 18. Iranian leaders believe that the Trump administration is seeking to reduce their negotiating leverage by enabling ships to transit through the strait without coordinating with Iran.
In Iran’s interpretation, Point 5 of the MOU grants them sole responsibility for restoring normal transit through the strait. But the same point also distinguishes between the transitional implementation period of 60-days and the longer-term framework. While it allows Iran to make arrangements for the safe passage of commercial vessels during the initial 60 days, it also explicitly requires Tehran to engage in dialogue with Oman to define the “future administration and maritime services” of the strait, in discussion with the other six Persian Gulf littoral states–Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates (UAE).
Iran and Oman have held numerous bilateral consultative meetings to discuss how to establish joint administration of the strait, but have yet to present a coherent plan. In an effort to head off the most maximalist Iranian demands, Omani officials have stated that the country “does not support the imposition of transit fees on vessels passing through the Strait of Hormuz” given that the “right of transit passage through straits used for international navigation is guaranteed under international law.” In this respect, the Omani position differs from the Iranian position, which insists that the strait lies in Iranian and Omani territorial waters.
Oman’s role in these sensitive negotiations is often misread. Trump threatened to “blow up” Oman and the U.S. Treasury Secretary threatened the country with economic sanctions over their perceived accommodation of Iran. But Oman has a direct interest in normalizing traffic through the strait, and has sought diplomacy and de-escalation with Iran, to prevent the maritime crisis from widening into a broader regional conflict. Oman’s economy, regional relationships, and diplomatic credibility depend on the uninterrupted flow of vessels through the strait. In dialogue with Iran, Oman is also representing the interests of the broader Gulf Cooperation Council (GCC), and arguably the international community.
Given the stakes, Oman’s negotiators are seeking a compromise solution with Iran. The fee may not be charged for transit through the strait, but it could be charged for other maritime services drawing “upon international best practices and successful experience in other strategically important maritime corridors.” Reports suggest that they are considering models such as voluntary fees charged in the Strait of Malacca or the fees charged by Turkiye of vessels passing between the Black Sea and the Mediterranean. These fees can support maritime services, including services related to safe navigation and environmental remediation.
Finding a workable model for administration of maritime traffic in the Strait of Hormuz will require careful consideration of what model will be politically viable, economically sensible, and technically feasible. There are a narrow range of options that could be acceptable to the eight littoral states in the Gulf and the broader international community. If the joint implementation of such an administrative model can serve as a platform to shore the ceasefire and strengthen regional diplomacy, its value would be obvious. In this respect, the creation of a “Hormuz fee” is not an attempt to impose new costs in a globally important chokepoint, but rather an opportunity to institutionalize the kind of positive-sum diplomacy that is necessary to protect that chokepoint from further disruptions.
Administrative Model
If fees are to be applied, a key consideration is which vessels would be charged. It would be counterproductive for Iran and its neighbors to impose fees that would increase incidental costs for imports. Even if nominal, such fees would ultimately be borne by consumers in the region as importers pass on the higher shipping costs. The fee could be focused on vessels exiting the Strait of Hormuz, which are carrying goods for export. But the broad imposition of such a fee would be a drag for regional exporters, especially non-oil manufacturers.
The logical target for any fees would be on the vessels exporting oil, gas, and related products. Given the enormous value of the exports and the nominal impact of a service fee, it would be straightforward to levy the fee on the large tankers that transport the vast majority of Gulf hydrocarbons to customers worldwide. Vessels would pay fees not for the right of transit through the strait, but rather in exchange for the services that enable their safe lifting of cargoes from Gulf ports.
All vessels calling at ports in the Gulf already pay port dues and service fees. The innovation of the administrative model would be to recognize that the Gulf ports are part of a regional maritime system, a kind of commons, which depends on the Strait of Hormuz. Establishing a surcharge that applies to any and all tankers lifting oil in the Gulf for export would be a step towards shared management of an important commons.
The imposition of the fee can be justified given the resources that all littoral states in the Gulf expend to manage the safe transit of Very Large Crude Carriers (VLCC) and Suezmax tankers and the environmental impact that such vessels have on the fragile coastal ecosystems of the Gulf. The shared nature of these burdens and the shared dependence on the strait also require that management of maritime traffic and the imposition of fees is administered by a multilateral body including all eight Persian Gulf littoral states.
In sum, the only viable “Hormuz fee” is one that is paid to a multilateral administrative body. The fee should be payable only by large tankers transporting oil and related products for export. The fee should also be associated with maritime services or environmental charges and must not contravene the freedom of transit through the Strait of Hormuz.
Estimating Revenue
There are around 900 operational VLCCs globally. Most of these vessels pick up oil or LNG from terminals in the Gulf at least once a year, even if they mainly operate in other regions. In order to estimate the likely revenue earned by the administrative body, we can say that there are roughly 600 VLCCs which will lift oil from a Gulf terminal each year. The true number is lower as some of the volume is handled by smaller Suezmax tankers.
To move the roughly 20 million barrels per day of crude oil and oil products that normally exit through the strait each year, these vessels need to make at least 2,000 lifts from Gulf oil terminals. If the service fee is payable each time a tanker lifts oil, there are 2,000 such payments that would be made each year. If the service fee is structured as an annual payment by each vessel, there would be 600 payments.
But what is the amount of the fee that needs to be paid? If the “Hormuz fee” is structured as a fee payable at each lifting, then the fee would need to be small. For example, the Port of Rotterdam charges tankers a “sustainability” fee of around $0.08 for each gross tonne. A VLCC can therefore expect to pay around $13,000 per call at Rotterdam. If a similar charge is levied at all ports in the Persian Gulf, on top of existing port-specific dues, the administrative body would earn $26,000,000 a year across the 2,000 liftings.
The fee would be higher if structured as an annual license that must be purchased for each vessel, but the increase in revenue would be modest. Even if the annual fee were as high as $100,000 per vessel, that would earn the administrative body a total of $60 million annually, when considering the approximately 600 VLCCs that might need to pay such a fee.
These are obviously tiny sums. The total value of the oil and oil products exported through the strait is around $600 billion per year, according to the International Energy Agency. Fees worth $60 million per year would represent an additional surcharge equivalent to just one-tenth of a percent of the total value of the transported cargo. In this respect, the fees are economically meaningless. Vessel owners are also unlikely to care. As Greek shipping magnate Evangelos Marinakis, whose fleet includes more than 20 VLCCs, has stated, “it is better to pay a fee of $100,000 or $200,000, depending on the size of the cargo or the size of the vessel, than to have all this hassle.”
Iran could try and insist on higher fees, but it is unlikely that the final arrangements would differ significantly from the fee structures that are seen in other contexts. Even if the fees were much higher–say $1 million per vessel per year–the total revenue across the 600 VLCCs would still be one-tenth of a percent of the total value of the energy trade. Iran, like other littoral states in the Gulf, is too wealthy to actually need the marginal revenues on offer through a Hormuz fee. Clearly, the fees would neither harm the oil trade nor offer Iran or any other littoral state some undue windfall. Economically speaking, the idea of a “Hormuz fee” is a modest proposal.
Diplomatic Value
By contrast, the diplomatic value of the fee could be enormous. The suggestion that there exist some multilateral arrangement to manage the strait is inherently constructive. It represents an opportunity to institutionalize regional cooperation in ways that recognize the shared interests of all eight Gulf littoral states.
It is important to acknowledge that it would be perfectly normal for there to exist some kind of multilateral administration in the Strait of Hormuz. In fact, the absence of such arrangements is a historical anomaly, one that reflects the relative dysfunction of regional diplomacy in the Middle East. The Turkish Straits and Danish Straits are both governed by international conventions. The English Channel and the Strait of Malacca are managed through cooperative frameworks. The Strait of Hormuz has no such underlying legal status or cooperative arrangements because of the historic tensions in the region and the longstanding reliance on an external security guarantor, the United States.
A multilateral body already exists that includes all eight littoral states as members. The Regional Organization for the Protection of the Marine Environment (ROPME), was established in 1978 in Kuwait to institutionalize environmental cooperation in the Gulf. While its function has been limited to the management of environmental emergencies, there is clearly room to expand its mandate. ROPME could be revitalized for the purpose of addressing shared safety and environmental issues in the Strait of Hormuz and its expanded activities could be funded through the new fee. Alternatively, a new administrative body could be established. Whatever the approach, the institution that manages the fee matters more than the fee itself. It is the institution that helps regional countries move towards shared responsibility for a critical aspect of regional security and economic activity, building trust through its iterative operation.
The only viable “Hormuz fee” is one that is paid to a multilateral administrative body. The fee should be payable only by large tankers transporting oil and related products for export. The fee should also be associated with maritime services or environmental charges and must not contravene the freedom of transit through the Strait of Hormuz.
It is also important to note that several of the largest VLCC fleets are state-owned, such as Saudi Arabia’s Bahri and Iran’s NITC, which operate around 90 VLCCs between them. Should these fleets be made subject to a fee, it would offer a way to mutualize maritime services in the region. The revenues, if they reach the tens of millions, would offer a meaningful operational budget for any administrative body seeking to improve maritime safety or undertake environmental remediation in the Gulf. This would be a case of the region funding its own integration alongside the payments made by foreign vessel owners, and in turn, their customers.
When it comes to institutional arrangements that help break cycles of conflict, there are many historical antecedents. In 1950, the Schuman Declaration proposed that Franco-German “production of coal and steel as a whole be placed under a common High Authority, within the framework of an organization open to the participation of the other countries of Europe.” The joint administration of the Strait of Hormuz can be for the eight littoral states of the Gulf what the European Coal and Steel Community was for postwar Europe. It offers the opportunity to institutionalize regional cooperation over a critical modality of trade in ways that build trust and help foster greater regional cooperation.
Ultimately, Iran’s insistence on the fee is about far more than potential economic gains or safety or environmental concerns. Iran’s leaders want to restore the status of Iranian sovereignty and security in the wake of war by leveraging regional arrangements. At the same time, the majority of the GCC states are seeking a practical framework that would diminish the chances of another conflict breaking out in the region. Economic interdependence has become a key aspect of the post-war approach by the Qataris, the Omanis, and the Saudis. While Emirati leaders might appear apprehensive about the idea, they have the greatest level of economic engagement with Iran of any Gulf state. What was missing from past interactions was an institutionalized approach to economic integration that would have contributed to regional peace and security. A shared Hormuz fee can be the first step towards closer regional coordination, cooperation, and, eventually, integration.
The Gulf has developed into far more than simply an energy-producing region. It is a dense system of manufacturing sites, mobility corridors, logistics hubs, financial networks, and digital infrastructure that connect Asia, Africa, Europe, and the wider global economy. Much of this system is directly impacted by instability in the Strait of Hormuz. When movement through the strait is disrupted, the consequences are not confined to oil prices or naval calculations. Shipping costs rise, insurance becomes more expensive, cargoes are delayed, food systems are strained, industrial production falters, and governments far from the region are forced to respond.
In this sense, a collaborative approach in administering the Strait of Hormuz is a test. If regional countries, or Western governments, are unwilling to even consider the creation of a multilateral body to manage maritime issues in the strait or to consent to a nominal fee on vessels, it would signal that no genuine path towards deconfliction has been opened in the wake of the war. Rather than reject Iran’s idea of a new fee out of hand, regional powers and the broader international community should work towards the most constructive instantiation of the fee and its administration. Seen this way, a “Hormuz fee” is a small price to pay for a chance at peace.
Esfandyar Batmanghelidj is the Founder and CEO of the Bourse & Bazaar Foundation.
Mehran Haghirian is the Executive Director of Research and Programs at the Bourse & Bazaar Foundation.
Section: (integrated-futures-initiative) Photo: Canva