Iran charges ships a toll, in yuan

Iran says commercial ships crossing the Strait of Hormuz must now pay a "maritime security passage toll" of up to $2 million a transit, and only in Chinese yuan. The new rule cuts against international maritime law and against the dollar's grip on world finance.

What the law of the sea says

Natural straits have been free of tolls for a long time. The UN Convention on the Law of the Sea guarantees ships a right of transit passage through straits used for international navigation and bars coastal states from charging foreign ships merely for passing, allowing fees only for specific services such as pilotage. Iran signed the convention in 1982 but never ratified it, and America has not ratified it either, so both argue from customary law. The canals at Suez and Panama charge tolls because they were dug and are maintained by the states that run them, whereas the Strait of Hormuz was dug by nobody.

The last strait toll

Denmark charged ships passing through the Øresund into the Baltic for more than four centuries, until America refused to keep paying and the European powers bought the dues out under the Copenhagen Convention of 1857. That toll ended because the big trading nations judged a single lump sum cheaper than paying per voyage for ever. Iran's version offers no such exit, since the state charging it is also the one threatening the ships.

A tollbooth that takes no dollars

The tolls are payable only in renminbi, into designated accounts at Chinese state banks. Tehran has thus found a way to charge for passage through the world's most important maritime chokepoint and, at the same stroke, set up a trade channel that avoids the dollar and is hard to sanction. Tankers carrying Iraqi, Kuwaiti or Emirati crude must either pay millions in renminbi to Iranian accounts or wait behind the blockade.

For a Very Large Crude Carrier holding about 2 million barrels, a $2 million toll adds roughly $1 a barrel. The payment route matters more than the amount. American sanctions bite through the dollar, because a dollar payment almost always clears through a correspondent bank in New York, which gives the US Treasury a chokepoint of its own. A renminbi payment settled between Chinese banks over China's own cross-border payment system, launched in 2015, never passes through it.

Where the yuan comes from

A shipowner in Athens or Oslo does not keep renminbi on hand. It would buy them in the offshore market centred on Hong Kong, where the currency trades more freely than on the mainland, and wire them to the designated accounts. Each transit therefore creates a small, steady source of demand for offshore yuan and a set of Western firms with accounts at Chinese banks. The volumes are modest beside the currency market as a whole, but the plumbing, once built, tends to stay in use. The Chinese banks holding the accounts gain deposits, fee income on every conversion and a list of foreign shipping clients they did not have before.

There is a recent model for how quickly such plumbing spreads. After Western sanctions in 2022 cut Russia off from much of the dollar and euro system, its trade with China shifted rapidly into yuan settlement. That shift happened because one side had no alternative. Iran's toll imposes the same constraint on third parties who would otherwise never have touched the currency.

Good for Beijing, bad for Washington

Beijing gains handsomely. Shipping lines and state energy buyers will have to hold yuan and settle deals in it. Washington loses twice: allied ships are paying Iran for passage, and the dollar's share of the energy trade is shrinking faster.

Qatar is caught in the same bind, since every cargo of its liquefied natural gas leaves through the strait. Gulf exporters that pay will be funding Iran directly, and those that refuse keep their oil in the ground. China, which buys much of the Gulf's crude and has run yuan-denominated oil futures in Shanghai since 2018, collects both the fees deposited in its banks and a widening circle of counterparties obliged to hold its currency.

The symbolism cuts deep in the Gulf itself. Since the 1970s, oil from the region has been priced and paid for in dollars, and producers recycled their surpluses into American assets, a pattern that helped keep demand for Treasuries steady for half a century. A toll collected in yuan at the mouth of the Gulf does not end that arrangement, but it puts a rival currency into the physical chain that moves the oil.

Limits on the yuan's gains

The case against is that the sums are small beside a dollar system that still accounts for most of the world's official reserves and trade invoicing. Beijing keeps its capital account closed, so shipowners forced to hold yuan will convert them as soon as they can. Any owner with American business must also choose between paying Iran and breaching American sanctions, and Washington has form here: it cut Bank of Kunlun, a Chinese lender that handled Iranian payments, off from the American financial system in 2012. That threat hangs over the state banks named as collection points and may confine the toll to ships with nothing to lose in America.

Insurance adds another barrier. The mutual clubs that provide liability cover to most of the world's fleet exclude voyages that break the sanctions rules they are bound by, so an owner that pays the toll risks sailing uninsured. Few charterers will load cargo on such a ship, and few ports will accept it. The toll is therefore likelier to be paid by owners already outside the Western insurance system.

The signals to watch are whether the US Treasury names the collecting banks, whether Asian buyers instruct their ships to pay, and how long the blockade lasts. Every tanker that pays the toll adds to a yuan payments channel beyond the reach of American sanctions, and if the toll lasts, more of the Gulf's oil trade will probably settle outside the dollar.