IS THIS THE END OF FREE SEAS?
How drones brought back a very old tax
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At the southeastern edge of the Persian Gulf, the black rocks of the Musandam Peninsula thrust northwards like a knife towards the Persian plateau, pinching the waterway into a chokepoint only 30 miles wide. Named for the Zoroastrian deity Ahura Mazda, this narrow channel is the Strait of Hormuz, and as recent events have proved, it is one of the world’s most important, but also one of its most vulnerable, maritime highways. Ordinarily, through this strait passes 20% of global energy supply, 36% of commercial helium, and a third of agricultural fertiliser, all upon the backs of supertankers the length of aircraft carriers. Such is the hulking mass of these vast ships, among the largest mobile structures humans have ever constructed, there is only a four-miles-wide channel in the strait where the water is deep enough for them to pass.
As surely now the entire world knows, in response to the American and Israeli airstrikes upon its leadership and military infrastructure beginning on the 28th February, the Islamic Republic of Iran began launching missiles and drones at tankers passing through the strait, alongside claims it had begun laying sea-mines in the channel. Though at least twenty-eight ships are confirmed to have been struck since the start of the war, the real damage was done by the skyrocketing cost of insurance; eventually insurers pulled their war-risk coverage entirely and the flow of traffic through the strait was brought to a halt. A few weeks before a typical day would see 138 ships pass through the waterway; suddenly that number fell to zero. Energy markets did not react well.
Or rather, not quite zero. Reports soon emerged that Iran was allowing Chinese vessels to pass through the strait, an exception explained by the fact China is both a nominal supporter of the regime and the single largest buyer of its oil. Later, the Iranian government announced the ships belonging to four more nations — Russia, India, Iraq, and Pakistan — would be allowed transit. Soon afterwards several other Asian countries like Thailand and Malaysia were also making deals for passage.
Quite what the terms of these deals were hasn’t been disclosed, but it was reported that some ships had been paying a $2 million toll in cryptocurrency in return for safe passage. Since then the Iranian parliament has moved to sign this toll into domestic law, while government officials made the formal recognition of Iran’s control over the strait part of its 10-point peace plan. Indeed, Iranian armed forces have proclaimed that the waterway will “never return to its former state”.
Despite the ceasefire agreed on last week, traffic through the Strait of Hormuz has barely resumed. On the day after the agreement was reached, Iran closed the channel once more after Israel continued to bombard Hezbollah in Lebanon. More recently, it has emerged that Iran cannot find the mines it laid in the water, further throwing the strait’s reopening into doubt. Meanwhile, Russia and China both vetoed a UN Security Council resolution requiring Iran to restore freedom of navigation to the shipping corridor. Though Britain, the EU, and the UN have all called for shipping through the strait to remain toll-free, President Trump, ever a man for a business opportunity, has floated the possibility of a joint venture with his erstwhile enemy, suggesting he wouldn’t mind Iran enforcing a maritime tollgate as long as the US gets a cut. He seems unbothered by the precedent this would set.
At the time of writing, the strait remains closed, with the latest development being that the US Navy is now blockading the blockade, preventing even the ships that have paid the toll to pass through. Presumably the strategy is to make Iran, whose oil and gas exports make up 15-25% of its GDP, feel the biting effects of the strait’s closure themselves. Whether this will be effective or not is at this stage unclear.1 As I wrote last week, it is ideologically and theologically impossible for the Islamic Republic to be seen to be capitulating to the ‘Great Satan’. If I had to offer a tentative prediction to how this might shake out, I wonder if the regime might eventually be willing to agree to curbs on its uranium enrichment in exchange for continued control over the strait, which would take us back to a JCPOA-type situation but with the added wrinkle that Hormuz is no longer a free shipping lane. Despite President Trump’s bluster, it seems the new warfare paradigm means even the world’s most powerful military has little ability to prevent a handful of drones and mine-laying small boats scare the insurance industry into shutting down shipping. It seems unlikely Iran will give up this new found leverage, which it sees as both a security guarantee and a means of funding its rebuild.2
The world has reacted to all this as though it were unprecedented. But sadly it is not. For most of recorded history, whomever controlled a narrow stretch of water tended to charge a toll to pass through it. What we are witnessing in the Persian Gulf is not novel, but the unfortunate return of a centuries-old tradition. I suspect the Iranian precedent may soon inspire copycats the world over; in fact, developments elsewhere suggest it is almost certain that we are witnessing the end of the era of free seas.
But to understand what will come next, let us first look to history.
In the early part of the 16th century, the Portuguese, after opening trade routes with the spice merchants of India by rounding the Cape of Good Hope, devised a plan to control all sea trade between Europe and Asia. While the Treaty of Tordesillas guaranteed that Portugal would not have to compete with Spain for the Indian Ocean trade, they did still have to contend with the Arab and Indian ships who had dominated the routes for centuries prior. Their solution was to seize three chokepoints: Aden, to control the Red Sea; Malacca, to control the route to China; and Hormuz, to control the Persian Gulf. At these junctures they constructed forts and extracted tolls from the ships that wished to pass. The fort upon Hormuz island tariffed merchants unchallenged for over a century, until 1622, when the Safavid Persians worked with the English East India Company to throw the Portuguese out. But the toll wasn’t a Portuguese invention: the Kingdom of Hormuz, an Arab polity, had extracted shipping taxes from the island as early as the 11th century. Perhaps ironically given what’s happening today, it was the Iranians who ended the centuries-old practice after taking possession of the island in 1622.
In Europe, perhaps the most infamous maritime toll was that extracted by the Danish on the Øresund, the narrow waterway that connected the Baltic to the North Sea (see top image). All ships had to call in at Helsingør and pay their dues on their way past; if they refused they were fired upon by cannons atop castles on either bank.3 In an elegant piece of fiscal engineering, the Danish crown reserved the right to purchase the goods at whatever price the captain declared, thereby deterring the understatement of the value of the hold, and the subsequent tax (normally 1-2% of the cargo’s value). For centuries, the tolls constituted up to two-thirds of Denmark’s state income. So hated was this rent-seeking it caused several wars.
Meanwhile on the Rhine, feudal lords and robber barons tolled the river for a thousand years, building castles at every narrow bend, sometimes stretching iron chains across the water so ships couldn’t pass without paying. On the Bosphorus, the Athenians, Byzantines, and Ottomans, all at various points in history charged levies on ships making passage between the Black Sea and Mediterranean. Centuries before the Portuguese arrived, both the Srivijaya Empire and Malacca Sultanate grew rich upon tolls levied on trade through the Strait of Malacca. Meanwhile the Barbary pirates of North Africa extracted what was essentially an unofficial toll for maritime traffic passing through the Strait of Gibraltar in return for not being boarded and enslaved.
Thus it was largely the norm through history, if one happened by luck of the geographical draw to be able to control a narrow channel of water, to charge merchant ships for passage. It was only the rise of truly global seapowers that created the principle of free seas.
In 1609, a Dutch lawyer named Hugo Grotius published a book called Mare Liberum (The Free Sea). Grotius argued that the ocean should belong to no one, that every nation had a right to sail its waters, and that maritime trade should move unencumbered by monopoly rights and taxes. While this sounds rather noble it was in fact motivated by commercial interests: he was the counsel to the Dutch East India Company and keen to establish a legal precedent for the breaking of the Portuguese and Spanish monopolies on the Indian and Pacific oceans.
The Dutch set about agreeing bilateral treaties with various European nations, staying neutral in many of the continent’s wars in order to maintain its free shipping rights. This led them to supply both the French and American forces during American Revolutionary War, something that angered the otherwise dominant naval power in the world at the time, Britain. After declaring independence in 1776, the United States began enshrining the principle into all its treaties with other nations. Soon afterwards Britain followed suit, using the might of the Royal Navy to enforce it around the world. Britain, the US, Russia, and other European nations paid Denmark an enormous one-time fee to end the toll on the Øresund in 1857. The tolls on the Bosphorus and Dardanelles were removed under the 1923 Treaty of Lausanne.
Since 1945, the role of global policeman of the waves has largely been played by the United States. For nearly eighty years world trade has benefited from free seas, with the United Nations codifying the principle in 1982 as the UN Convention on the Law of the Sea.4 But alas, laws are generally only as effective as their enforcement. While the United States has seen a diminishment in its relative strength on the world stage (due to the emergence of China as a Great Power peer), the true damage to free seas has been the asymmetrical warfare possibilities offered by drones and other autonomous weapons. Now a mid-sized regional power like Iran can hold the world economy hostage for a remarkably low sum. Drones cost a few tens of thousands of dollars; anti-ship mines can be laid from fishing boats. As we’ve seen in Ukraine, this new paradigm enables a small power on the defensive to resist the full military might of a Great Power many times its size and strength. In fact, it even enables non-state actors to impact the global economy.
In recent weeks, the Houthis, an Iran-allied militia operating in Yemen, have been operating a similar blockade in the Bab-el-Mandeb — the strait connecting the Indian Ocean to the Red Sea — allowing only ships that distance themselves from the United States or Israel to pass through. This is the latest in a series of disruptions to maritime traffic the Houthis have been responsible for over the last few years. As early as 2023, the rebel group began attacking ships associated with Israel, in response to the latter’s attacks on Gaza. By March 2024, over 2000 ships had been diverted away from the Red Sea, resulting in tens of thousands of dollars of additional fuel costs, as well as weeks of additional journey time. Following the ceasefire in the Gaza Strip late last year, the Houthis have since paused their attacks on commercial ships, but in recent days have been threatening to close the Bab-el-Mandeb completely. If Iran succeeds in maintaining its toll in Hormuz, it’s no great leap of logic to imagine the Houthis trying to enact something similar in the Red Sea, with their ally’s support. Suddenly, the world’s two most important energy corridors are hostage to malicious actors and there appears little the world can do about it.
With the precedent set, it may not be long before other nations begin following suit. I mentioned above how the 1923 Treaty of Lausanne ended the maritime tolls the Ottoman Empire once charged for passage through the Bosphorus and Dardanelles. In actual fact, Turkey is permitted to charge something classed as a “lighthouse, rescue, and medical fee” under the Montreux Convention, which is technically not a toll but a charge for services the Turkish government provides passing traffic. Though it complies with international law, from the point of view of shipping companies the fee is indistinguishable from an ordinary toll. Originally, the fee was nominal, set to be the equivalent of one Germinal franc per ton, then updated in 1983 to USD $0.8063 per ton. It remained so until 2022, when the Turkish government claimed it wanted to end “39 years of victimisation” and raised the fee fivefold, subject to a review every year. After another hike in 2025, today the fee sits at $5.83/ton, netting the Turkish government over $227 million a year. While this is still a pittance compared to the billions collected by Egypt and Panama from their respective canals (artificial waterways are treated differently from natural straits under international law), the direction of travel is clear. Turkey has long chafed under the strictures of the Montreux convention; if ships now have to pay to pass through Hormuz and Bab-el-Mandeb, why should they not do the same for the Turkish straits? Turkey is a far more serious a military power than Iran, and unlike the Islamic Republic and their allies the Houthis, it controls both sides of its strait.
For decades, Turkey has also been mooting the possibility of building the Istanbul Canal — a separate waterway connecting the Black Sea to the Sea of Marmara. This was in large part because the Turkish government would have been able to charge far higher fees to transiting ships. Perhaps now it won’t need a canal to do so.
Even more pertinent to global trade than the Bosphorus, Hormuz, or Bab-el-Mandeb is the Taiwan Strait. The hundred miles-wide channel separates the island of Taiwan and mainland China and through it passes one fifth of all global maritime trade (worth $2.45 trillion in 2022). Among that traffic is over 30% of China’s imports and nearly 16% of its exports.
In the last days of 2025, the People’s Republic of China conducted the most recent of their many military exercises simulating a blockade of Taiwan. It is thought by some analysts that China is more likely to attempt its long-stated goal of reunification with the island by such a manoeuvre, rather than a full frontal amphibious assault. In this way it could essentially hold the island under siege, waiting for it to capitulate by exerting economic and diplomatic pressure on it and the rest of the world, without necessarily needing to fire a bullet. Of course this would be an enormous risk to China itself, given its reliance on the waterway for its own trade, and the risk of open war with the US, which has long maintained a ‘strategic ambiguity’ over whether it would come to Taiwan’s defence. But Iran has shown how little force is needed to disrupt the shipping industry in a given corridor; by exerting just enough pressure to cause insurers to think twice about underwriting ships bound for Taiwan (something often referred to as a ‘grey zone embargo’), but not enough to warrant a military response from the island and its allies, there might be a goldilocks zone where China can engineer what it wants without risking open war. It could frame this as a quarantine and maintain a facade of ‘peaceful intent’.
If China does reunify with Taiwan, whether by a blockade or otherwise, it would then have tremendous leverage over the global economy. It could use its control of both coastlines flanking the channel to enforce a toll of its own, potentially squeezing regional rivals like Japan and South Korea, or those further afield like the US and Europe. This is without mentioning the resulting control over Taiwan’s semiconductor fabs, which in the context of the emerging military capabilities of AI are perhaps the most geopolitically significant manufacturing sites in the world.
Of similar import to Taiwan is the Strait of Malacca, which carries a similar portion of world trade. Today, the neighbouring countries of Malaysia, Indonesia, and Singapore are all happy beneficiaries of the free seas arrangement and seem unlikely to wish for a maritime toll in the manner of the Srivijaya and Portuguese empires of centuries long past. However, if tensions between the US and China escalate beyond the Taiwan Strait, Malacca becomes a vital geopolitical vulnerability for both sides: China depends on it for energy imports; the US and its allies for trade with East Asia. It would likely become a key flashpoint in any future war.
In the coming decades, as the Arctic sea ice retreats in the wake of a warming climate, the Northern Sea Route, along the northern coast of Russia, will become an ever more important shipping lane. Russia has spent billions upgrading infrastructure along the Arctic coast; every year the ice-free summer sailing window increases. Russia already collects fees for mandatory icebreaker escorts through the waters, something which is only like to increase in the future.
There are over two hundred major international straits across the world, at least two dozen of which are of significance to global commerce. Most overlap with the territorial waters of one or more nation states. The entire system of global shipping as we know it today rests on the assumption that freedom of transit is guaranteed by international law, an assumption that is beginning to look in doubt for the first time since 1945. A recent study in Nature estimated the expected value of trade disrupted at maritime chokepoints at $192 billion annually, with the Taiwan Strait and Suez Canal accounting for the largest shares. That figure was calculated before the Hormuz crisis; it is almost certainly higher now.
Freedom of navigation was never a natural condition of the seas. It was an artefact of naval hegemony, sustained by the polite fiction that all nations shared an equal interest in keeping the waters of the world open. Sadly, the cost of closing a strait has plummeted, while the means for reopening one does not yet exist. Right now there are 400 ships stranded in Persian Gulf, unable to reach the open ocean. It’s unlikely all will be able to leave without paying for the privilege.
The end of free seas appears nigh. We will all be the poorer for it.
It is certainly a bold strategy, given that the US’ main geopolitical rival, China, is so dependent on Iranian oil.
It has been estimated that formalising the Strait of Hormuz into a fee-paying corridor could be worth $5bn-$8bn annually for Iran and Oman.
Incidentally, one of these castles was the setting for Hamlet.
Interestingly, the Iranian government never ratified UNCLOS.
This is a very welcome bit of context for this unnecessary martial action.
Interesting. Presumably the UK could be an economic winner from the Dover Straits.