A senior Iranian official’s assertion of the country’s “legitimate right” to control the Strait of Hormuz has reignited fears of a full-scale disruption to global energy supplies.
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Iran's 'Legitimate Right' to Control Hormuz Threatens Oil Spike Above $100
A military advisor to Iran's Supreme Leader on May 24 declared that controlling the Strait of Hormuz is the nation's "legitimate right," escalating tensions in a waterway that handles nearly 21% of global oil consumption and threatening a severe response to any perceived hostile acts in the Persian Gulf.
"I’m not entertaining conversations relating to mandatory tolls, things that go beyond the freedom of navigation, the right of innocent passage," Arsenio Dominguez, the head of the International Maritime Organization, said in response to reports of Iran attempting to formalize fees for passage.
The statement from Mohsen Rezaei, broadcast by Iran's Tasnim News Agency, explicitly linked the control of the strait to national security and included a warning that withdrawing from the Nuclear Non-Proliferation Treaty remains a "strategic option." The threat sent Brent crude futures climbing toward $90 a barrel and prompted a flight to safe-haven assets, including gold and the US dollar, as markets priced in the rising geopolitical risk.
This declaration threatens to formalize a reality that has existed for months, where shipping companies have had to coordinate with Iranian authorities and pay high fees to pass through the chokepoint. While Tehran maintains the strait is not blocked, traffic has been significantly curtailed since its forces took control, causing a surge in global energy prices and stranding vessels in the Persian Gulf for months.
A Bid to Monetize a Global Chokepoint
Iran's move appears to be an attempt to monetize its de facto control over the world's most important oil chokepoint. According to The New York Times, Tehran has been in discussions with neighboring Oman about a system to charge fees for passage. This action directly contravenes international maritime law, which guarantees the right of innocent passage through such international waterways.
The International Maritime Organization, a United Nations agency, has strongly objected to any mandatory toll system. However, the threat alone has deeply unsettled the global shipping industry, adding another layer of uncertainty and cost to operations in the region. The concern is that Iran could leverage its geographic position to influence global traffic and energy prices long after the current conflict subsides, potentially doing lasting damage to the global economy.
Markets Brace for Supply Shock
The potential for a full or partial closure of the Strait of Hormuz represents a significant supply shock to the global oil market. Before the recent escalation, the strait was a transit point for one-fifth of the world's oil and gas. A disruption could cause a sharp spike in oil prices, with some analysts suggesting prices could quickly surpass $100 per barrel.
The heightened risk is also impacting broader financial markets. A sustained increase in energy prices would fuel global inflation, putting pressure on central banks and negatively affecting risk assets like equities. Conversely, the situation is expected to benefit safe-haven assets. The potential for conflict has historically driven capital towards gold and the US dollar, a trend that is re-emerging as tensions escalate.
This article is for informational purposes only and does not constitute investment advice.
[1] Advisor to Iran's Supreme Leader: Controlling the Strait of Hormuz is a 'Legitimate Right'[2] EA-18G Growler: Blinding Hormuz Strait radars with Digital Spear[3] Trump signals Iran strait deal progress[4] Iran says Strait of Hormuz to remain under its control[5] The Risks of Iran’s Threat to Control the Strait of Hormuz
