How Iran’s new transit regime tightens its grip over Strait of Hormuz — and leaves world in a dilemma

Iran established the Persian Gulf Strait Authority (PGSA), a body mandated to manage ship transits through the Strait of Hormuz and collect passage fees from...

What Happened

Iran established the Persian Gulf Strait Authority (PGSA), a body mandated to manage ship transits through the Strait of Hormuz and collect passage fees from commercial vessels.
Vessels are now required to submit applications detailing ownership, insurance, crew manifests, and cargo declarations, with transit permits issued only after approval and payment of fees — with some vessels reportedly paying up to $2 million per transit.
The United States, Gulf states, and European countries have collectively rejected the legal validity of Iran's transit fee regime, creating a standoff with no established international arbitration mechanism in place.
Iran has justified the regime on the grounds that it is not bound by the transit passage provisions of UNCLOS, as it signed but never ratified the convention.

Static Topic Bridges

Strait of Hormuz: Geography and Strategic Importance

The Strait of Hormuz is a narrow waterway connecting the Persian Gulf to the Gulf of Oman, with Iran on its northern coast and the Musandam Peninsula (Oman and UAE) on its southern coast. The strait is approximately 167 km long and narrows to about 39 km at its tightest point. It is the world's single most critical oil transit chokepoint, as it provides the only sea passage from the Persian Gulf to the open ocean.

In the first half of 2025, approximately 20.9 million barrels per day (mb/d) of oil transited the strait — roughly 20% of total world petroleum liquids consumption.
This includes approximately 15 mb/d of crude oil and condensate plus 5.5 mb/d of refined products.
About 20% of global LNG trade also passes through the strait.
Only Saudi Arabia and the UAE have operational crude pipelines that could partially bypass the strait, with a combined bypass capacity of 3.5–5.5 mb/d — far below the total volume transiting.

Connection to this news: Iran's new transit regime directly threatens the free flow of approximately one-fifth of the world's daily oil supply, making any disruption or fee imposition a matter of global economic and energy security concern.

UNCLOS and the Right of Transit Passage

The United Nations Convention on the Law of the Sea (UNCLOS), adopted in 1982 and entered into force in 1994, is the primary international framework governing maritime rights. Part III (Articles 34–45) establishes the legal regime for straits used for international navigation. Under Article 37 and Article 38, ships and aircraft of all states enjoy the right of transit passage through international straits — meaning continuous, expeditious, and unimpeded navigation. Critically, coastal states cannot levy fees on vessels exercising transit passage unless specific services are rendered.

Iran signed UNCLOS in 1982 but never ratified it, placing it in a similar formal position to the United States.
Upon signing, Iran declared that the transit passage regime is not customary international law but a treaty-specific "package deal" applicable only among UNCLOS parties — meaning Iran considers itself unbound by Part III.
Most international legal scholars contest this position, arguing that transit passage through major international straits has attained the status of customary international law binding on all states.
UNCLOS has 168 state parties as of 2026.

Connection to this news: Iran's transit fee regime directly tests whether UNCLOS transit passage rights — and the prohibition on fees — are binding on non-ratifying states like Iran. The legal ambiguity creates a dilemma: enforcing free passage risks military confrontation, while acquiescing sets a precedent for other coastal states controlling strategic straits.

India's Energy Security and Gulf Dependence

India is the world's third-largest crude oil consumer and imports approximately 88.5% of its petroleum requirements. Over 60% of Indian crude oil imports originate from Persian Gulf countries — primarily Iraq, Saudi Arabia, Kuwait, and the UAE — though this share has reduced from 72% in 2017-18 through deliberate diversification. As of March 2026, the Indian crude basket price reached $113.57 per barrel amid Hormuz-related geopolitical volatility.

India now sources crude from approximately 40 countries (up from 27 in 2006-07), reflecting an active diversification policy.
Non-Hormuz routes account for roughly 70% of India's crude imports as of 2026, up from about 55% before the current conflict — driven by increased purchases from Russia, the Americas, and West Africa.
India maintains a Strategic Petroleum Reserve (SPR) at Visakhapatnam, Mangaluru, and Padur with a total capacity of approximately 5.33 million metric tonnes.

Connection to this news: Any sustained disruption at or taxation of Strait of Hormuz traffic directly impacts Indian energy costs and supply security, making India a significant stakeholder in how the international community responds to Iran's transit regime.

India-Iran Relations and Strategic Calculus

India and Iran share a complex bilateral relationship spanning energy trade, the Chabahar Port project, and the International North-South Transport Corridor (INSTC). India has historically balanced its Iran engagement against its partnerships with Gulf Arab states, the United States, and adherence to international sanctions regimes.

India was Iran's second-largest oil customer before US secondary sanctions were tightened in 2019-20; Indian purchases resumed under waivers and informal arrangements thereafter.
The Chabahar Port agreement (10-year contract signed May 2024) gives India a sanctions-exempt route to Afghanistan and Central Asia, bypassing Pakistan.
India has consistently advocated for dialogue and de-escalation in Gulf crises while protecting its energy supply lines.

Connection to this news: India faces a dilemma — opposing Iran's transit regime risks straining the Chabahar relationship, while acquiescing exposes Indian shipping to new costs and sets a precedent antithetical to India's advocacy for freedom of navigation in other maritime domains (including the South China Sea).

Key Facts & Data

The Strait of Hormuz handles approximately 20.9 mb/d of oil — about 20% of global petroleum consumption.
Iran signed UNCLOS in 1982 but never ratified it; its transit passage declaration upon signing contests Part III applicability.
UNCLOS Article 38 guarantees transit passage rights through international straits for ships of all states.
Vessels reportedly pay up to $2 million per transit under the new Persian Gulf Strait Authority regime.
India imports approximately 88.5% of its crude oil requirements; over 60% originates from Persian Gulf states.
Saudi Arabia and UAE pipeline bypass capacity covers at most 5.5 mb/d — leaving the vast majority of Hormuz traffic with no alternative route.
Iran's billboards in Tehran reportedly project $100 billion annually in potential Hormuz passage revenues.