If it costs money to cross the Suez Canal and the Panama Canal, why does it matter if ships must pay to cross the Strait of Hormuz? For some time, that appeared to be the shrugging reaction of the United States government to suggestions that Iran might extend its de facto toll regime in Hormuz after the conclusion of hostilities, charging fees ostensibly in exchange for its ‘management’ of the waterway.
Secretary of State Marco Rubio, after a tour with allies in the Gulf, has rhetorically firmed up US opposition to an ongoing regime of tolls administered by Iran. Yet it remains far from clear how Washington, stung by what can — in spite of some heroic efforts to suggest the contrary — only be categorised as a defeat in the war on Iran, might be able to ensure that the Strait remains free, in both senses of the word, for shipping.
Rubio is correct to argue that Iran has no legal right to impede transit traffic in an international waterway. Under the UN Convention on the Law of the Sea (UNCLOS), ships have a clear right to unobstructed, untolled passage of the Strait. Of course, Iran has never ratified UNCLOS, disputes some of its legal framework, including the right of transit passage, and has also disputed the Strait’s designation as an international waterway.
The United States and its allies are also correct on the merits of vigorously opposing any attempt by Iran to impose tolls on one of the most important waterways in the world. Not only would it throw sand in the gears of global energy trade, it would also set a dangerous precedent, even though, thankfully, most other coastal countries in a position to impose costs on transit passage have come out strongly against the idea of imposing tolls on shipping.
Of course, this is an intellectual case that Washington would find easier to prosecute if it were a party to UNCLOS; since President Reagan’s doctrinaire decision to refuse American participation, and indeed to try to convince other Western powers to abandon it, the United States has refused to ratify it, just like Iran.
As its geopolitical hegemony begins to wane, the United States may begin to regret having paid so little respect to the international rule-making bodies that guarantee the free flow of global commerce.
As Leonardo Bernard argues in this week’s lead article, the consequences of a degradation in the authority of the UNCLOS regime would be devastating for global economic security, leading to ‘counter‑measures, greater naval presence by extra-regional powers and potentially competing management regimes around the same straits.’ This would, as Bernard argues, ‘turn such straits from shared arteries of global commerce into focal points of strategic contestation.’
Such a development would be a reversion to the mercantilist geography of an earlier era, in which the costs of great power rivalry were borne disproportionately by smaller, trade-dependent economies with minimal capacity to absorb them.
Asia’s dependence on oil passing through the Strait of Hormuz has understandably rattled regional governments. The war in Iran has shaken faith in the reliability of Middle Eastern energy supplies and also, crucially, in the strategic role of the United States in the region. An unintended benefit of the conflict may be a hastening of a much-needed energy pivot in the region, which can be seen in the soaring demand for solar panels, electric vehicles and a renewed interest in renewables and nuclear energy across the region.
While this shift is marketed as a shift towards ‘energy security’ and ‘national sovereignty’, and hence compatible with the rising intellectual tide of protectionism seen mainly in the North Atlantic economies, the truth is that a major reduction in fossil fuel dependence in Asia will require the rules-based trading order to hold firm to allow the effective transfer of green technology.
The conflict between Iran and the United States, coming on the back of the Ukraine–Russia war, has made it clear that, in combination, a weakened respect for trading rules and highly concentrated trade in fossil fuels have the potential to cause major damage to third parties. If Iran were successful in its bid to monetise its military control over Hormuz, it would deal a further blow to the international order.
This only underscores the urgent need for our region, and particularly its middle powers, to step up their efforts to save the institutions of the global open trading order — UNCLOS very much included. There is no protectionist future in which the small, open economies of the region could really prosper. Small open economies in economic parlance include all countries, as well as middle powers, except China and the United States.
It is heartening that Indonesia has repudiated the earlier suggestion of its Finance Minister that it might seek to impose tolls in the Straits of Malacca, but it is nonetheless worrying that the finance minister of a major Southeast Asian government did not instinctively see how damaging such a proposal would be for the region and for Indonesia itself. Nothing could be more damaging for the economy of a maritime region like Southeast Asia than a collapse in shipping driven by national rent-seeking from coastal states.
What Asia, and indeed the world, cannot afford is for the principle of free, unimpeded shipping to become seen as a benevolent gift from great powers that can be withdrawn whenever it’s convenient. It is a fundamental right of states, and needs to be defended as such. A united regional front against the weaponisation of sea lanes is as necessary as one against the new protectionism coming out of Washington.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Law, Policy and Governance, The Australian National University.