In Brief:
- The imposition of a transit toll on the Strait of Hormuz is unlawful under established principles of international law, including customary international law predating UNCLOS and reflected in the 1958 Convention on the Territorial Sea and Contiguous Zone. The discriminatory character of the access regime currently in operation, which applies different conditions to vessels based on flag state nationality, constitutes a breach of UNCLOS Article 42(2), and, to the extent that passage is denied to certain flags entirely, amounts to a separate and independent breach of the obligation under Article 44 not to hamper or suspend transit passage.
- Paying the toll is likely to expose parties to criminal or civil liability across multiple jurisdictions simultaneously. The Islamic Revolutionary Guard Corps designation as a Foreign Terrorist Organisation means payment engages the material support framework in the United States, for which duress and necessity are not cognisable defences, in addition to overlapping sanctions regimes in the European Union and the United Kingdom.
- The enforcement gap, created by the absence of available multilateral enforcement mechanisms, means that the legal clarity of the prohibition does not translate into practical remedies, making the commercial and contractual dimensions the only reliable arena in which practitioners can currently protect their clients.
Introduction
A laden VLCC approaching the Strait of Hormuz faces a decision that no commercial contract, insurance policy, or legal opinion resolves cleanly. The Islamic Revolutionary Guard Corps (“IRGC”) is demanding approximately $1 to $2 million per transit according to Lloyd's List Intelligence reporting, payable in Bitcoin, USDT, or Chinese yuan, before granting clearance to proceed. Paying may constitute a criminal or civil offence across multiple jurisdictions simultaneously. Refusing risks physical interdiction if the vessel attempts to proceed without authorisation.
The scale of the problem for the global economy is significant. The Strait of Hormuz, at its narrowest point just twenty-one nautical miles wide, carries approximately twenty million barrels of oil and petroleum products per day, roughly one-fifth of global seaborne oil supply, along with around twenty per cent of the world's liquefied natural gas. Before the current crisis, an estimated 138 vessels transited daily. Several Gulf states have no pipeline bypass capacity and are structurally dependent on maritime transit through this single passage for their hydrocarbon exports.
Iran’s “Strait of Hormuz Management Plan,” approved by the parliamentary National Security and Foreign Policy Committee on 31 March 2026, represents one of the most direct modern attempts by a state to monetise passage through a natural international strait since the abolition of Denmark’s Sound Dues by multilateral treaty in 1857. It also appears to be one of the first known instances of a toll demanded in cryptocurrency, a structural feature that does not avoid exposure under applicable sanctions regimes.
On 17 April 2026, Iran's Foreign Minister declared the Strait completely open for commercial vessels for the remaining period of the Lebanon ceasefire, subject to three specific conditions: all transiting vessels were required to follow the coordinated route established by Iran's Ports and Maritime Organisation; transit was restricted to non-military commercial vessels only; and all vessels were required to obtain explicit permission from the IRGC Navy before entering the designated corridors. Within twenty-four hours, the Strait had effectively returned to a state of restricted access, with the IRGC resuming enforcement operations and most commercial traffic ceasing again. The proposed toll has not been formally cancelled, and the fundamental legal and commercial position analysed in this article remains unchanged.
This article examines the legal framework underlying the toll and the sanctions compliance trap that makes payment risky. The commercial allocation of the toll across charterparty and trade term frameworks, the insurance coverage questions it raises, and a detailed hypothetical scenario illustrating how each legal thread plays out in practice are addressed in the second article in this series. This article reflects the position as at the date of publication and incorporates the latest developments.
Is the Toll Lawful?
1. The Legal Position Under UNCLOS
The toll is unlawful. This conclusion governs the entire commercial and insurance analysis that follows. Whether the toll is lawful under international law determines whether hull insurers can invoke the exclusion for financial causes of loss, whether war risk clauses are triggered, whether force majeure arguments succeed, and how sovereign immunity defences will be framed in the arbitration and litigation that is now building.
Articles 37 to 44 of the United Nations Convention on the Law of the Sea ("UNCLOS") establish a right of transit passage which may not be suspended and do not permit the imposition of transit tolls or charges as a condition of passage. Article 38(1) provides that all ships enjoy the right of transit passage, which shall not be impeded. Article 44 is unqualified and States bordering straits shall not hamper transit passage and shall not suspend it. Article 42 sets out the laws and regulations that strait states may adopt, covering safety of navigation, pollution prevention, and customs controls limited to loading or unloading, and tolls are absent from that list. Part III does not provide for the imposition of passage fees, and the omission is deliberate.
Ambassador Tommy Koh, presiding over the final session of UNCLOS III in Montego Bay on 11 December 1982, described the transit passage regime as one of the Convention's most important compromises, designed to protect the international community's interest in freedom of navigation. The negotiating record confirms that proposals to authorise tolls in straits, including charges for services such as lighting and dredging, were explicitly rejected during the conference. The absence of any toll provision in Part III was therefore deliberate. Koh's remarks also established that rights and obligations under the Convention go hand in hand, and that states which expanded their territorial seas to twelve nautical miles under UNCLOS cannot simultaneously reject the corresponding obligation not to hamper or suspend transit passage.
2. Discrimination and Denial of Transit Passage
UNCLOS Article 42(2) prohibits strait state laws and regulations that "discriminate in form or in fact among foreign ships." According to reporting by Lloyd's List Intelligence in March and April 2026, Iran has implemented an access regime under which vessels must submit their IMO number, cargo manifest, crew details, ownership records, and destination to intermediaries connected to the IRGC before receiving a clearance code and escort through a controlled corridor. The conditions of access, including the fees demanded, vary according to the flag state's relationship with Iran, with certain flags subject to complete prohibition on passage. This structure is discriminatory on its face, applying different financial charges and different access rights based on the flag state's political relationship with Iran. The total prohibition on certain flag states goes further still, constituting not merely a discriminatory toll but a categorical denial of transit passage, which Article 44 prohibits. A practitioner advising a shipowner whose vessel is subject to those conditions would appreciate that the legal objection to the toll is not only that fees are charged but that the specific conditions applicable to their vessel, including the possibility of complete denial of access, constitute a separate and independently unlawful act. The documentation submission requirement also raises independent concerns about commercial confidentiality and the practical risks of engaging with a designated terrorist organisation as part of a routine clearance process.
3. Iran’s Non-Ratification Argument and the Customary Law Baseline
The transit passage regime under UNCLOS has attracted a specific challenge from states that signed but did not ratify the Convention. The argument, which has attracted some academic support, is that pre-existing customary law rather than the UNCLOS transit passage regime governs the Strait for non-ratifying states, leaving those states with discretion to assess the innocence of passage and impose conditions including fees. Alexander Lott, writing in EJIL: Talk! in March 2026, acknowledged genuine uncertainty about whether UNCLOS transit passage has fully crystallised as customary international law binding on non-parties, and noted that the persistent objector doctrine may be available to states that objected consistently to that regime from its formation.
The prevailing scholarly and institutional view does not accept this argument, for two reasons that operate independently of UNCLOS. First, the 1958 Convention on the Territorial Sea and Contiguous Zone, which reflects the pre-UNCLOS customary position, already prohibited both the suspension of innocent passage through straits and charges for mere passage under Articles 16(4) and 18. The customary prohibition on tolling international straits therefore predates UNCLOS by decades and cannot be displaced by invoking a pre-UNCLOS baseline. Second, a state that unilaterally expanded its territorial sea to twelve nautical miles, thereby bringing the full width of the Strait within its claimed jurisdiction, cannot selectively reject the corresponding obligation not to hamper or suspend transit passage through it. The mainstream scholarly view, expressed by James Kraska of the US Naval War College in March 2026 and by Mark Nevitt of Emory University School of Law writing in Just Security on 8 April 2026, is that the transit passage regime reflects and incorporates the pre-existing customary prohibition on tolling and binds all states regardless of ratification status. The IMO Secretary General's confirmation on 9 April 2026 that no international agreement authorises tolls on international straits reflects the same institutional consensus.
Historically, Denmark collected Sound Dues on all vessels transiting the Oresund from 1429 to 1857, at their height in the sixteenth and seventeenth centuries comprising a substantial portion of Danish state revenue. Under sustained multilateral pressure, Denmark agreed to the Copenhagen Convention of 14 March 1857, which declared the definitive and irrevocable abolition of all Sound Dues and prohibited any future compulsory transit charge. The Convention established as a matter of binding international law the principle that natural straits cannot be converted into toll corridors. The current toll represents the most direct modern challenge to that principle since 1857.
4. The Enforcement Gap and Current Reality
The enforcement gap is real. Iran has not ratified UNCLOS, and Part XV compulsory arbitration applies only as between States Parties to the Convention, placing it beyond the reach of UNCLOS enforcement mechanisms against Iran. The Strait represents the principal maritime corridor for the region's exports, and many states worldwide, including several Gulf states with no pipeline bypass capacity, are structurally dependent on unimpeded transit through this single passage for their trade and energy security.
On 8 April 2026 the United States and Iran agreed to a two-week ceasefire, with the White House confirming that the agreement was conditional on Iran reopening the Strait without restriction, including tolls. The ceasefire has not produced a material reopening. Lloyd's List reports that shipping flows through the Strait have fallen further despite the ceasefire, with Iran continuing to assert control through new transit rules, threats of force, and an evolving toll system.
5. Legal Consequences and Commercial Impact
The practical significance of the toll's illegality lies not in the strength of the legal position, which is clear, but in its downstream commercial and insurance consequences, which the second article in this series addresses.
On 9 April 2026, IMO Secretary General Arsenio Dominguez confirmed the legal position directly, stating that "there is no international agreement where tolls can be introduced for transiting international straits" and that any such toll would set a "dangerous precedent." The IMO reaffirmed that under UNCLOS, ships enjoy the right of transit passage through international straits and that bordering states are prohibited from hampering or suspending that passage.
One constructive legal pathway remains available. The GCC states could collectively petition the International Tribunal for the Law of the Sea for an Advisory Opinion definitively codifying transit passage as a rule of customary international law binding on all states, including non-UNCLOS parties. The procedural pathway for such a request runs through an authorised international organisation. The IMO, as the principal international maritime regulatory body whose member states collectively represent the global shipping community, is the most natural institutional channel for a formal referral of this kind. The IMO's own statement of 9 April 2026 provides a ready foundation from which a formal institutional request could develop.
An Advisory Opinion of this character would establish transit passage as an erga omnes obligation, meaning one owed not to any particular state but to the international community as a whole, such that every state has a legal interest in its observance regardless of whether it is directly affected by a breach. This would close the gap that arises when a state signs but does not ratify a convention while continuing to benefit from the geographical entitlements it creates, and would remove the doctrinal foundation of the persistent objector argument. The persistent objector doctrine allows a state to opt out of consent-based customary obligations but cannot override an erga omnes obligation, which by definition is not consent-based. It would not directly compel the dismantling of the toll system, but it would remove any remaining legal ambiguity and provide the clearest possible foundation for future enforcement action through diplomatic, economic, or military means.
The widespread international condemnation of the toll, combined with the absence of any state publicly endorsing the argument that transit passage may be subjected to tolls or conditions, is itself contributing to the crystallisation of the customary prohibition in real time.
For practitioners advising clients on long-term contractual and commercial positioning, the availability or otherwise of this mechanism matters. If an Advisory Opinion is sought and granted, the legal landscape shifts materially, and the arguments available in future litigation and arbitration may be correspondingly stronger.
Can the Toll Legally Be Paid?
Before any charterparty or insurance analysis can be meaningful, practitioners must address the question that compliance officers and in-house counsel will ask first: whether the toll can legally be paid. For entities with any connection to the United States, the European Union, or the United Kingdom, the answer is, in most cases, no. Each of those jurisdictions maintains sanctions regimes that designate the IRGC as a terrorist organisation or a sanctioned entity and prohibit making funds or economic resources available, directly or indirectly, to IRGC-affiliated entities. The US framework provides for criminal penalties for wilful violations. The EU designated the IRGC as a terrorist organisation on 29 January 2026, freezing funds and economic resources and prohibiting transactions with designated entities. The UK framework provides for both criminal offences and civil monetary penalties, including strict liability enforcement in certain cases.
The use of cryptocurrency as the payment mechanism does not remove this exposure. Sanctions compliance obligations apply equally to virtual currency transactions, and enforcement action has been taken against cryptocurrency exchanges and wallet addresses linked to sanctioned networks, including those associated with the IRGC. Entities without a direct nexus to those jurisdictions are not subject to those regimes in the same way, but may nonetheless face exposure to US secondary sanctions where transactions involve IRGC-affiliated entities. The question of jurisdictional nexus requires careful, case-specific analysis, and no entity should assume it falls outside the scope of these regimes without obtaining specific advice.
The result is a position of legal impossibility. Payment is likely to expose parties to criminal or civil liability across multiple jurisdictions. Refusal to pay carries the risk of physical interdiction if the vessel attempts to proceed without authorisation. One avenue sometimes considered in extremis is a duress or necessity argument, on the basis that a shipowner compelled by military force to pay or face seizure has no real choice. The relevant sanctions regimes are structured to apply strictly, and duress or necessity is not generally recognised as a basis for avoiding liability. Contemporaneous documentation of coercive circumstances remains advisable for a range of other legal purposes, but it does not remove the sanctions exposure.
Recommended Steps for Affected Parties
The legal analysis above has direct and immediate practical consequences. The following steps address the specific risks arising from the sanctions exposure and legal impossibility issues identified in this article.
- Do not submit documentation to IRGC intermediaries without first obtaining legal advice. The access regime currently in operation requires submission of cargo manifests, crew lists, ownership records, and destination details to IRGC-connected intermediaries before clearance is granted. This submission may itself engage the sanctions regimes discussed in this article, depending on the nature and extent of the interaction, regardless of whether any toll payment is subsequently made. All entities should obtain jurisdiction-specific legal advice before providing any documentation to any IRGC-affiliated body.
- Document the toll demand contemporaneously and in full. If an IRGC vessel broadcasts a toll demand, the time, location, precise nature of the demand, identifying details of the vessel, any threats made, and all communications and responses should be recorded at the time. This contemporaneous record is essential for any subsequent legal proceedings, insurance notifications, and the evidential record relevant to any duress arguments.
- Seek coordinated multi-jurisdictional sanctions advice before any decision is made on payment, refusal, or diversion. A legal opinion from counsel in one jurisdiction does not address exposure in others. Decisions on payment, refusal, or diversion should not be taken without advice covering all jurisdictions in which the relevant entities and their affiliates operate.
- Notify your flag state, P&I club, and hull underwriters before any planned transit into the Strait. Contemporaneous notification helps preserve insurance coverage positions and creates a record supporting causation arguments under Clause 4.1.6 of the Institute War and Strikes Clauses in the event of interdiction following refusal to pay. Notification after the event is materially less effective.
- Monitor OFAC for any guidance specifically addressing toll payments. General Licence U, issued on 20 March 2026, expired on 19 April 2026 and no extension has been announced as at the date of this article. No guidance specifically addressing toll payments has been issued. Entities should monitor OFAC for any supplemental general licence or guidance before taking action involving any aspect of activity within the scope of the applicable OFAC sanctions framework.
Conclusion
The toll is unlawful, and paying it exposes parties to liability under applicable sanctions regimes. These two propositions, operating simultaneously, describe a situation that international law, domestic criminal law, and commercial contract law each produce consistently within their own frameworks, yet which collectively leave the shipowner, charterer, and cargo interest without a clear path forward.
Consider the position of a shipowner with a UK management office whose time-chartered vessel approaches the Strait of Hormuz carrying CIF cargo. UNCLOS treats the toll as unlawful. The IRGC will refuse clearance, and the vessel risks physical interdiction if it attempts to proceed without authorisation. Applicable sanctions regimes treat payment as prohibited, with duress unlikely to provide a defence. The time charterer asserts that the toll falls for its account and requires the vessel to proceed. The hull underwriter reserves its position on whether physical interdiction for refusal to pay constitutes a war peril or a financial cause under Clause 4.1.6 of the Institute War and Strikes Clauses, which excludes losses arising from failure to pay any financial cause.
None of the legal frameworks engaged in this situation provides a clean exit. Each is internally coherent. Taken together, they create a deadlock that practitioners must navigate using the only tools currently available: bespoke contractual drafting, careful governing law selection, multi-jurisdictional sanctions compliance advice, and rigorous pre-transit insurance review.
Hadef & Partners advises shipowners, commodity traders, and cargo interests across the Gulf region and internationally on maritime disputes, sanctions compliance, and the full range of commercial consequences arising from the Strait of Hormuz crisis.
If you would like further information relating to this ongoing situation, and how it may be affecting your business, please contact Mohamed Eissa at m.eissa@hadefpartners.com or your usual Hadef & Partners contact.
This article is intended for general informational purposes only and does not constitute legal advice. Readers should seek independent legal counsel in relation to their specific circumstances.