Something is rotten in the Strait of Hormuz

Iran’s Strait Authority sets a nasty modern precedent

Bridge crossing, Iran (edited, source: World Bank Archive)

On May 22, Iran’s newly established Persian Gulf Strait Authority (PGSA) published an updated map asserting regulatory control over a broad corridor from Kuh-e Mubarak in Iran to south of Fujairah in the UAE. The zone overlaps the territorial waters of the UAE and Oman. All vessels transiting the area are required to obtain prior PGSA authorization, submit ownership, cargo and crew details, and pay fees in Chinese yuan, Bitcoin, or USDT — or be subject to interdiction by the Islamic Revolutionary Guard Corps.

Five Gulf Cooperation Council (GCC) states urged the International Maritime Organization to reject compliance, though Oman opted not to join the coalition. Unsurprisingly Russia and China blocked the United Nations from taking action against Iran. The international response now hinges on a question that sounds technical but is actually civilizational: do we recognize the Persian Gulf Strait Authority as a regulator?

And what happens if we do?

One may smile and smile and be a villain

Iran’s PGSA is engineered to look like an actual regulatory body: permit applications, Vessel Information Declarations covering ownership and cargo, designated transit corridors, and an official X account. Meanwhile, payments to the PGSA are built to evade sanctions. J.P. Morgan estimates the system could generate $70–90 billion annually if normalized. The U.S. Office of Foreign Assets Control (OFAC) FAQ 1249 indicates that paying the toll creates significant sanctions exposure for non-US persons but OFAC will have to aggressively investigate and enforce this, or the threat will be meaningless.

Every other state sitting on a geographic chokepoint similar to the Strait of Hormuz is watching. Turkey controls the Bosphorus. Indonesia and Malaysia flank Malacca. Russia and Belarus could squeeze the Suwałki Gap. If the world accepts the PGSA, everyone can copy the PGSA’s playbook: stand up an “authority,” publish a map, accept yuan and crypto, and dare the international community to refuse compliance while ships queue up at the chokepoint. Or face kinetic engagement. Rinse. Repeat.

Foul deeds will rise

This isn’t the first time a state has collected a toll on a natural feature it didn’t fully control. From the mid-1400s to 1857, Danish kings collected the Sound Dues from every non-Danish ship passing through the Øresund Strait. If you refused to pay, you received vigorous encouragement from the cannons of Kronborg Castle until you did. Around 1600, the Sound Toll was already producing as much revenue for the Danish crown as all of its royal lands combined.

King Eric of Pomerania introduced the dues in 1428 because the Øresund herring fishery had collapsed and he needed the revenue — and because, controlling both shores of the only viable Baltic strait, he could. The toll was rent extraction, justified by geography and enforced by military might. A remarkable fact about a toll is that once people start paying it, they’ll just go on paying it — even after Denmark lost the eastern shore to Sweden in 1658, stripping it of full geographic control, the dues continued for another 199 years!

The Sound Dues met their demise in 1857 at an international trade conference, after sustained pressure from the maritime powers tired of paying the toll (it only took them 400 years). If only all trade conferences were this exciting! Denmark accepted a buyout of 33.5 million rigsdaler, roughly a year’s worth of Danish state expenditures at the time, and abolished the dues by treaty at the Copenhagen Convention. Over the centuries, the Sound Dues had triggered multiple wars and played a major role in Danish foreign policy.

King Eric and his successors proved, not for the first time nor the last, that a credible threat of military force can extract rent from a chokepoint a country doesn’t fully control, and that these rents can become embedded over time. And the longer rent extraction continues, the more it costs rentees in lives, treasure, or diplomatic will to make it stop. Both Iran and the Gulf States have something to learn from the Sound Dues.

Take arms against a sea of troubles

For Pete’s sake, I hope it doesn’t take us another 400 years to form an anti-toll coalition. Thankfully the other Gulf states are having none of it. To reduce Iran’s leverage, its oil-producing neighbors are faced with a problem: how to divert the more than 20 million barrels of oil per day that would typically flow through the Strait of Hormuz through different delivery routes. Saudi Arabia ramped its East-West Pipeline to full capacity at 7 million barrels per day. The UAE is expanding its Habshan-Fujairah pipeline. Iraq’s Kirkuk–Ceyhan line reopened after a decade of idleness (one imagines this came as a shock to the spiders who set up webs in the nice empty pipe). In aggregate, these cut into but won’t replace Hormuz’s capacity. More action is needed to nip the PGSA in the bud and save ourselves from a dozen other copycat fake regulators or rentiers.

Don’t recognize the regulator: The Gulf states’ (minus Oman) letter to the International Maritime Organization is only a first step in fighting Iran’s fake regulator. As the Sound Dues showed, once a rent is embedded, recognition keeps it alive — and dislodging such a rent takes generations. On May 27, OFAC designated the PGSA. While this means that the U.S. government, at least, is serious about policing the toll (see below), in a way it gives the PGSA legitimacy (by stooping to acknowledge it, though there is liberal use of “so-called strait authority” in the press release) which is a template we want to avoid.

Police the payment rails aggressively: OFAC’s FAQ 1249 and subsequent May 1 Alert make it clear that payments to Iran’s Strait Authority are barred under Executive Order 13902, with secondary-sanctions exposure for foreign banks that facilitate these payments. Enforcing the EO against yuan intermediaries and crypto wallets would give teeth to the continued non-recognition of the authority.

Invest in redundancy: By imposing a toll upon the Strait, Iran has revealed to the international community how much pain it can inflict upon a whim. Diversification away from reliance on the Strait is necessary: more pipelines, expanded oil terminals, alternative suppliers. Ideally the PGSA’s revenue projections collapse and Iran settles for a buyout, similar to the collapse of Denmark’s Sound Dues.

Geography is destiny, sure. But it feels a bit medieval to let a country start charging tolls on the entire international community to navigate a natural strait. King Eric of Pomerania would be proud but theoretically we’ve evolved past 15th century methods of governance. Unless the world’s maritime states take action to stop the recognition of Iran’s Persian Gulf Strait Authority, there’s no telling how many other countries with a similar natural chokepoint might start salivating over the hoards of treasure to be collected by parking a short-range ballistic missile on a beach.¹

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Upon submitting material for prepublication review by the U.S. government, I was directed to add the following (fairly obvious) disclaimer: All statements of fact, opinion, or analysis expressed are those of the author and do not reflect the official positions or views of the US Government. Nothing in the contents should be construed as asserting or implying US Government authentication of information or endorsement of the author’s views.