Iran Is Not Blocking the Strait of Hormuz. It's Running a Toll Booth

On March 26, Abbas Araghchi announced that ships from five "friendly nations" could transit the Strait of Hormuz: China, Russia, India, Iraq, Pakistan. Since then, the list has quietly expanded to include Turkey, Malaysia, Thailand, the Philippines, France (one CMA CGM vessel), Japan (one Mitsui OSK LNG tanker), and Oman. Ships from the United States and Israel are permanently barred. Countries that imposed unilateral sanctions on Iran face the same prohibition. Gulf Arab states involved in the conflict are implicitly excluded.This is not a blockade. It is a permission economy. And it is the most consequential geopolitical innovation of a war now in its sixth week.The mechanics are documented by the Atlantic Council, CNBC, and Bloomberg. Ship operators contact IRGC-linked intermediaries and submit IMO numbers, crew lists, cargo manifests, ownership structures, and final destinations. The IRGC vets the information against what Iran reportedly calls a "friendliness ranking," a 1-to-5 scoring system for each nation. If approved, the IRGC issues a single-use VHF passcode and route instructions. Ships are directed through Iranian territorial waters north of Larak Island, not the main shipping channel south of it.An Iranian patrol boat arrives to escort the vessel through. Payment is approximately $1 per barrel, roughly $2 million for a fully loaded VLCC. Payment is accepted in Chinese yuan via Kunlun Bank, which handles Iran-China transactions outside SWIFT, or in stablecoins and cryptocurrency.Sixty-two vessels have transited through this corridor since March 13, according to Lloyd's List Intelligence. Total transits since March 1: 221 ships, of which 145 were traceable and 76 had their AIS transponders turned off. Seventy-one percent of all ships that transited are Iranian-owned, going to or from Iranian ports, or part of the shadow fleet linked to Iranian oil.The system works. Not well. Not at pre-war volumes. But it works.Who Is Actually Getting Through
China was promised first access on March 4. The reality is different. CSIS tracked 49 Chinese or Hong Kong-flagged vessels transiting in the week before the war collapsed traffic. Since March 1, only 2 Chinese-flagged ships have been observed crossing. Fifty-five Chinese vessels remain trapped inside the Persian Gulf. Their headline: "No One, Not Even Beijing, Is Getting Through the Strait of Hormuz."
The problem is not permission. It is fear. Mainstream Chinese shipping companies will not risk the passage. Only general cargo and bulk carriers have gone through. Non-Chinese vessels have started altering AIS transponder signals to claim Chinese ownership, broadcasting "CHINA OWNER" in their destination fields. One vessel, the Sino Ocean (Liberia-flagged, Chinese-owned) broadcast "CHINA OWNER_ALL CREW." Newsweek investigated and found most of these ships did have legitimate Chinese connections, but the practice itself tells you everything about how the strait operates now.
India resumed importing Iranian oil for the first time since 2019. This is a historic shift. Nine Indian-flagged vessels (LPG and crude) have successfully transited. Seventeen remain stranded with about 485 crew. India signed a $370 million Chabahar port deal with Iran and has not joined any anti-Iran coalition. Delhi's approach is quiet bilateral negotiation, securing passage without antagonizing Washington. It is working, sort of.
Iraq got its exemption on April 4 when Iran's military spokesman declared in an Arabic-language video that "brotherly Iraq is exempt from any restrictions we have imposed on the Strait of Hormuz." The tanker Ocean Thunder, carrying roughly one million barrels of Basrah Heavy crude, transited on April 5. On April 6, Iraq's SOMO told refiners they could "collect crude cargoes." The potential is enormous: up to 3 million barrels per day could flow again. But Iraq's Basra Oil Company says the guarantees are "verbal only." No documentation. No security guarantees. Production has collapsed from 4.15 million barrels per day in February to roughly 1.4 million, with Basra province down to 900,000. Basra Oil says it could restore to 3.4 million within a week if Hormuz fully reopens. It has not.
Russia got the exemption on paper. Kremlin aide Yury Ushakov stated on April 3: "For us, Hormuz is open." No confirmed Russian vessels have actually transited. The exemption is diplomatic, not commercial.
France and Japan slipped through on April 3. A Maltese-flagged CMA CGM vessel, the Kribi, became the first Western European commercial ship to transit since the war began. A Mitsui OSK LNG tanker, the Sohar LNG, became the first Japanese-linked vessel and the first LNG carrier since February 28. Neither country is part of any military operation against Iran. Both negotiated bilaterally.
The Strategic Logic
Why these countries? The answer is simpler than it looks.
Iran is communicating several things simultaneously with a single instrument. To Washington: you cannot open Hormuz, we decide who passes. To the Global South: neutrality is rewarded, alignment with America is punished. To Gulf Arab states: your security guarantees from the US are worthless, cooperate with us or lose your export capacity. To the world: Hormuz is not an international commons, it is Iranian territory.
The legal position is weak. Transit passage under UNCLOS Part III guarantees free, continuous, and unobstructed passage for all ships. This is customary international law, binding even on non-parties. Iran signed UNCLOS but never ratified it. The selective nature of the blockade, permitting some flag states while denying others, violates the principle of non-discrimination between flag states. UNSC Resolution 2817, adopted 13-0-2 on March 11 (China and Russia abstaining), condemns the blockade. It has no enforcement mechanism.
But the Lawfare analysis cuts deepest. International law can articulate that Iran's conduct is illegal. It cannot force Hormuz open. No state has initiated proceedings before the International Tribunal for the Law of the Sea. The 40-nation coalition assembled by UK Foreign Secretary Yvette Cooper has not coalesced around a legal strategy. The gap between legal prohibition and enforcement is where Iran operates, and it is a wide gap.
The Yuan Dimension
The toll payment system is not incidental. Every dollar that flows through Kunlun Bank in yuan is a micro-transaction in the de-dollarization project. China's CIPS processed $245 trillion in yuan-denominated transactions in 2025. If Hormuz, through which 20% of global oil flows, becomes permanently conditioned on currency denomination, the result is a bifurcated oil market: yuan-denominated barrels through Hormuz, dollar-denominated barrels rerouted at higher cost around Africa.
Iran's parliament advanced the "Strait of Hormuz Management Plan" (approved by the National Security Committee on March 31, Guardian Council review and presidential signature pending) to retroactively legalize the toll. Unilateral domestic legislation cannot override international maritime law. But law is only as good as its enforcement, and nobody is enforcing anything.
Asia Times published an analysis titled "Iran's Hormuz Yuan Play: A Direct Hit on the Petrodollar." We think that overstates it. The volumes going through are too small to restructure global currency markets. But the precedent matters. The principle that a chokepoint state can condition passage on currency denomination has been established. It will be studied in Beijing, Ankara, and Cairo.
Why the $40 Billion Backstop Is Not Enough
The US doubled its DFC reinsurance program to $40 billion on April 6, adding AIG, Berkshire Hathaway, Travelers, Liberty Mutual, Starr, and CNA alongside Chubb. This covers hull, machinery, and cargo. It does not cover crew lives. It does not cover pollution liability. It does not cover protection and indemnity.
Twelve seafarers have been killed or gone missing since the war began. One port worker is dead. Iran has pre-positioned 5,000 to 6,000 mines. Drones and missiles continue to fly. Even "exempt" ships navigate through an active war zone. Insurance covers the steel but not the people inside it. Shipping companies have said as much: safety is the barrier, not cost.
War risk premiums have jumped from 0.125% to 3.5-10% of ship value, a 28-to-80-fold increase. Major insurers (Gard, Skuld, NorthStandard, London P&I Club, the American Club) cancelled war risk cover on March 5. A $100 million ship now costs $3.5 to $10 million to insure per crossing. VLCC day rates hit all-time highs.
The Price Signal
The selective blockade has created a sour crude crisis. The Dubai benchmark relies on five crude grades from the UAE, Oman, and Qatar. Three of those five are effectively sidelined by the blockade, cutting deliverable crude by roughly 40%. Saudi Aramco raised its Arab Light premium for Asian buyers to $19.50 per barrel above the Oman/Dubai benchmark. That is the highest premium in the company's history.
Singapore jet fuel is at $230 per barrel, up 140% from pre-war levels. Ultra-low sulfur diesel trades above $180. Europe faces a diesel shortage within weeks if the blockade persists.
Brent is at $109-111. The Dubai physical benchmark spiked to approximately $170. The gap between paper and physical crude has never been this wide.
What Iran Is Really Building
The Cipher Brief published the most useful framing we have seen. This is not a crisis to be managed. It is a new geopolitical architecture being stress-tested in real time.
Every ship that transits through the IRGC's Larak checkpoint, paying in yuan, receiving a VHF clearance code, being escorted by Iranian patrol boats, is implicitly recognizing Iranian sovereignty over the strait. Iran's 10-point ceasefire counter-proposal, rejected by Trump on Sunday, includes international recognition of its right to exercise authority over Hormuz. The selective blockade is a live demonstration of that authority.
The genius of the design, and we do not use that word lightly, is that total closure would unite the world against Iran. Selective opening divides potential adversaries, rewards neutrality, punishes Washington alignment, generates revenue in non-dollar currencies, and creates facts on the ground for Iran's ultimate demand. A total blockade is a siege. A selective blockade is governance.
Traffic is ticking up. Twenty-one ships crossed over the April 5-6 weekend, the highest since early March. But that is still 87-93% below normal. Two thousand vessels are stranded on both sides of the strait.
The question is not whether Hormuz will reopen. The question is whether it reopens on Iran's terms or the world's. After five weeks, Iran's terms are looking more durable than anyone expected. And now Velayati is threatening Bab al-Mandeb too.