Iran's Strait of Hormuz Fee & UNCLOS: Transit Passage and International Law Explained

The conflict backdrop: After the United States and Israel launched military action against Iran in late February 2026, shipping through the Strait of Hormuz fell to a near-standstill, and the US imposed a naval blockade on Iranian vessels. Iran retaliated by weaponising the strait — warning vessels against passage and, from around mid-March, running a vetting-and-toll system through its Islamic Revolutionary Guard Corps.

The framework agreement: A framework agreement signed in mid-June 2026 reopened the strait, lifted the US blockade, and provided for demining and a period of free safe passage. Crucially, Tehran made sovereignty over the strait a central negotiating demand and, in May 2026, set up the Persian Gulf Strait Authority to issue "safe passage permits."

Toll dropped, fee retained: Iran has dropped the explicit war toll but maintains that it will charge a navigation fee and an environmental protection charge. Iran's framing — articulated by its Foreign Ministry — is that these are charges for services rendered, including navigational assistance and joint environmental protection with Oman, not a charge for the right of passage. The United States insists the strait must stay "toll-free." Writing in The Indian Express, international-law scholar Anwar Sadat frames the episode as a test of whether such charges survive scrutiny under the law of the sea.

Geography: The Strait of Hormuz is a narrow waterway connecting the Persian Gulf with the Gulf of Oman, which opens into the Arabian Sea and the wider Indian Ocean. It is bordered by Iran to the north and Oman's Musandam Peninsula (an exclave) and the UAE to the south. At its narrowest, it is only about 33 km wide, with shipping lanes roughly 3 km wide in each direction separated by a buffer zone. It is the only sea route out of the oil-rich Persian Gulf to the open ocean.

The world's premier oil chokepoint: An "oil chokepoint" is a narrow channel on a major sea route that is critical to energy security. Hormuz is the most important of them all. About a quarter of the world's seaborne oil trade — roughly 20 million barrels per day in 2025 — passes through it, along with close to 20% of global liquefied natural gas (LNG), the bulk of it Qatari and Emirati exports bound for Asia.

Limited bypass options: Only Saudi Arabia (the East-West/Petroline pipeline to Yanbu) and the UAE (the ADCOP pipeline to Fujairah) have meaningful capacity to bypass the strait; Iran's own Goreh-Jask pipeline offers a modest alternative. For Iraq, Kuwait, Qatar and Bahrain, there is effectively no alternative — which is exactly what gives a bordering state like Iran its leverage, and exactly why international law tries to limit that leverage.

The constitution of the oceans: The United Nations Convention on the Law of the Sea (UNCLOS), adopted in 1982 and in force since 1994, is the comprehensive treaty governing the rights and responsibilities of states in the world's oceans. It is often called the "constitution for the seas."

The maritime zones: Measured from a baseline (usually the low-water coastline), UNCLOS establishes graded zones: the territorial sea up to 12 nautical miles, where the coastal state has full sovereignty (subject to innocent passage); the contiguous zone up to 24 nautical miles, for limited enforcement; the Exclusive Economic Zone (EEZ) up to 200 nautical miles, where the state has sovereign rights over resources but not over navigation; and beyond that, the high seas, open to all.

Why the strait is "territorial": Because Iran and Oman each claim a 12-nautical-mile territorial sea, and the strait at its narrowest is less than 24 nautical miles across, the entire navigable channel falls within the territorial waters of the two states. There is no strip of high seas running through the middle — which is why a special legal regime, transit passage, becomes essential.

Transit passage — the stronger right: Part III of UNCLOS (Articles 34 to 44) governs straits used for international navigation. It provides that all ships and aircraft enjoy the right of transit passage — the freedom of continuous and expeditious navigation and overflight through such straits. The logic is that when global trade depends on a narrow corridor, bordering states should not be able to weaponise it. Critically, under Article 38 this passage "shall not be impeded," and under Article 44 the coastal state cannot suspend it for any reason, including military exercises.

Innocent passage — the weaker right: Innocent passage is the older, narrower right that applies to navigation through a state's territorial sea (Article 19). Passage is "innocent" only so long as it is not prejudicial to the peace, good order or security of the coastal state. It does not extend to overflight by aircraft or to submerged transit by submarines, and — unlike transit passage — it can be temporarily suspended in parts of the territorial sea. Iran's strategy is to argue that only the weaker innocent-passage standard applies, giving it more room to impose conditions.

Why the difference matters here: Under transit passage, vessels need no notification or authorisation and cannot be charged for passage. Under innocent passage, the coastal state retains more discretion. The entire legal contest over the Hormuz fee turns on which regime governs the strait.

The case against the fee: Many maritime-law experts argue that transit passage permits no charge for the mere act of passing. They note that the principle predates UNCLOS — in the Corfu Channel case (United Kingdom v. Albania, 1949), the International Court of Justice held that ships enjoy unrestricted passage through a strait used for international navigation in peacetime, provided the transit is not prejudicial. Robert Kolb of the University of Geneva has argued that fees would be incompatible with transit passage through a strait linking sections of the high seas or EEZs. The counter to Iran's "service fee" label is that, if a vessel cannot realistically avoid the charge, then re-branding a toll as a "fee" does not make it lawful.

Iran's defence: Iran advances several arguments. First, it signed UNCLOS in 1982 but never ratified it, and when signing it declared it would apply the transit-passage regime only to states that are themselves parties. Second, Iran relies on its 1993 domestic legislation, the Law on the Marine Areas of the Islamic Republic of Iran in the Persian Gulf and the Oman Sea, which requires prior authorisation for warships and subjects passage to environmental protection. Third, Iran invokes the persistent objector doctrine — the rule that a state which has consistently and openly objected to an emerging norm of customary international law during its formation is not bound by it. Iran argues it has persistently objected to treating transit passage as binding custom.

The unsettled core: The United States and many maritime nations counter (as Chatham House notes) that transit passage has crystallised into customary international law binding even on non-parties, precisely because of the importance of unimpeded passage through such straits. The honest legal position is that the matter is not conclusively settled — which is what makes Iran's leverage politically potent even if legally contestable.

Natural strait versus artificial canal: The decisive distinction is that the Suez and Panama Canals are artificial, engineered waterways that were constructed, are maintained, and are administered under sovereign territory and specific treaty terms. Their operators can lawfully charge tolls because they provide and maintain the passage itself. The Strait of Hormuz, by contrast, is a natural waterway that exists independently of any state's effort.

The legal consequence: Because Hormuz is a natural international strait, it is governed by the general law of unsuspendable transit, not by the bespoke toll arrangements of a man-made canal. A coastal state cannot bargain over access to a natural strait the way a canal authority can over a constructed one. This is the central reason most experts view a per-transit charge on Hormuz as legally distinct from — and far harder to justify than — Suez or Panama tolls.

India's exposure: India is the world's third-largest oil consumer and imports about 85% of its crude. A large share of its Gulf crude — and most of its LNG and LPG — has historically transited Hormuz. Any disruption raises freight and insurance costs, fuels inflation, and pressures the rupee and the current account.

India's mitigation: During the 2026 crisis, India's Petroleum Ministry stated that roughly 70% of its crude imports were being sourced from outside the Hormuz route through diversification across about 40 supplier countries, and that strategic reserves and refinery flexibility provided a buffer. India's Strategic Petroleum Reserves cover only a limited number of days of imports, underscoring the need for deeper resilience.

The strategic lesson: India's stake is twofold — upholding the principle of freedom of navigation under UNCLOS (which India, as a maritime power and UNCLOS party, strongly supports), and reducing structural dependence on a single chokepoint through supply diversification, larger strategic reserves, alternative corridors such as the India-Middle East-Europe Economic Corridor (IMEC), and the energy transition. The episode is a reminder that sea-lane security rests on geopolitics as much as on treaty law.

Reaffirm freedom of navigation and the un-suspendable nature of transit passage through diplomacy and multilateral pressure, since unilateral charges on a natural strait set a destabilising precedent for other chokepoints.

For India, deepen energy resilience by expanding Strategic Petroleum Reserves, diversifying crude and gas suppliers, and developing alternative corridors such as IMEC and Red Sea/Cape routes.

Accelerate the energy transition (renewables, electrification, green hydrogen) to structurally reduce dependence on imported hydrocarbons and on any single transit route.

Pursue calibrated diplomacy with both Iran and the Gulf states, leveraging India's traditionally balanced ties in West Asia, while protecting the safety of the large Indian diaspora in the region.

Encourage clarification of the legal status of the strait through dialogue, recognising that the dispute is as much geopolitical as legal.