The U.S.-Iran MOU and the Future of Maritime Shipping Through the Strait of Hormuz

The U.S. and Iran signed a memorandum of understanding (MoU) to end the war and create a framework for further negotiation on a “final deal” to resolve, mainly, the issue of Iran’s nuclear program. 

Iran made highly effective use of the Strait of Hormuz as a lever of pressure during the war, disrupting maritime traffic and effectively blocking the strait, one of the world’s most vital arteries, accounting for a significant part of global oil and gas supplies. The closure sent economic shock waves worldwide. 

Therefore, the future of maritime shipping through the strait is of special interest to everyone worldwide, not just to the parties to the MoU. The strait was dealt with in a vague and unsatisfactory way in the MoU, opening the door for the next crisis very soon. This article will explain why the MoU’s wording on the strait is so problematic.

Article 5 of the MoU, tackling the issue of the Strait of Hormuz has two parts.

The first part addresses the immediate steps Iran must take “for the safe passage of commercial vessels, with no charge for 60 days only” (emphasis added). There are two problems with this part. First, on the one hand, “the traffic of commercial vessels will immediately start.” But, on the other hand, Iran is given 30 days to clear the strait “considering the need for removing the technical and military obstacles, and de-mining.” Do the 60 days start immediately or only after the strait is clear of obstacles and open? The MoU doesn’t say. Secondly, Iran’s undertaking to ensure safe passage applies only to commercial shipping. Yet under any plausible interpretation of international law, the freedom of navigation through international straits such as the Strait of Hormuz extends to all ships and aircraft, including warships and other government vessels.

The second part deals with what should happen in the strait after the 60-day agreement expires:

The Islamic Republic of Iran will conduct dialogue with the Sultanate of Oman, to define the future administration and maritime services in the Strait of Hormuz, in discussions with other Persian Gulf Littoral States, in line with applicable international law and the sovereign rights of coastal states of the Strait of Hormuz.

This phrasing implies a regime different from the one that existed before the war, referring to the “future management and maritime services” in the Strait of Hormuz. 

Iran only agrees to conduct a “dialogue” about the future administration of the strait with Oman, which borders the opposite side of the strait, and to hold “discussions” with the other Gulf states. The U.S. is not a party to these discussions, and the issue is not one of the topics set for discussion as part of the final deal’s negotiation. Given the United States’ status as a world naval power and its longtime interest in freedom of navigation through international straits, this “hands-off” attitude is surprising. 

Furthermore, the MoU does not condition any future arrangement in the strait on the conclusion of an agreement. Iran could claim that, after holding such dialogue and discussions, it is entitled to announce a new regime requiring vessels to obtain prior approval and pay charges for passing through the strait. Indeed, a report after the signing of the MoU claimed that Iran estimates the annual revenue from “charging for security, safety and environmental services in the strait” would be $40 billion for the countries involved. 

To be sure, the memorandum appears to impose one limitation: Any future arrangement must be “in line with applicable international law,” but given the well-known disagreement between Iran and most of the world over what international law requires in the Strait of Hormuz, this formulation does little more than kick the can down the road.

Soon after the memorandum was signed on June 21, Iran’s First Vice President Mohammad Reza Aref said that the Strait of Hormuz belongs to Iran and is a tool that the country will use. This statement is in stark contradiction to a joint statement following the ministerial meeting of the U.S. and the Gulf Cooperation Council (GCC), on June 25, that “emphasized the importance of reopening the Strait of Hormuz, noting that free, unconditional, and unrestricted navigation, including the right of transit passage as guaranteed under international law, remains essential to regional and global security.”

What Is the Regime in International Straits Under International Law?

An international strait is a maritime passage used for navigation between one part of the high seas or an exclusive economic zone and another part of the high seas or an exclusive economic zone, through the territorial seas of the states bordering the strait. Under the 1982 United Nations Convention on the Law of the Sea (UNCLOS), international straits are subject to the regime of transit passage. This is a broad right of navigation and overflight for the continuous and expeditious transit. States bordering the strait may not suspend that right, even on security grounds.

Iran, like the United States, is not a party to UNCLOS. Nevertheless, the prevailing view is that the transit-passage regime reflects customary international law and is therefore binding on all states. Iran argues that even if such a customary rule exists, it does not bind Iran because Iran persistently objected to its formation. In Iran’s view, the applicable regime in the strait is innocent passage, like in territorial waters generally. Innocent passage also ensures free passage to ships of all states but is somewhat more limited. For instance, it doesn’t include the right to overflight (for aircraft) and requires submarines to navigate on the surface and to show their flags. While innocent passage in territorial waters generally may be restricted temporarily for security reasons, there are reasons to claim that even before UNCLOS, such suspension did not apply to international straits.

One practical difficulty with Iran’s argument is that the strait is not situated exclusively in Iranian territorial waters. Iran shares the strait with Oman, which is a party to UNCLOS and is undoubtedly bound to permit transit passage through the part of the strait in its territorial waters. Any Iranian interference with passage through Omani waters would infringe on Oman’s sovereignty and plainly violate international law.

Another claim against Iran’s position is that it ignores the “package deal” nature of UNCLOS’s international straits regime. Major maritime powers (including the U.S.) demanded passage rights in straits wider than innocent passage as a condition for accepting 12 nautical miles as the maximum breadth of the territorial sea. The reason for this linkage was that extending the territorial sea would close the possibility to pass through a corridor of international waters through important straits—such as Hormuz. Iran cannot take one part of the “deal” (12 miles territorial sea) and reject the strings attached to it (transit passage through international straits).

Iran’s position is also difficult to reconcile with UN Security Council Resolution 2817, adopted during the war, which condemned Iran for interfering with and threatening navigation in the Strait of Hormuz and clarified that any obstruction of “lawful transit passage” through the strait constitutes a threat to international peace and security.

But even if Iran’s position was accepted, and the applicable regime was innocent passage through the territorial sea rather than a transit passage through an international strait, Iran still could not impose charges for passage. Charges may be levied only for specific services rendered to a ship. That rule appears not only in Article 26 of UNCLOS but also in Article 18 of the 1958 Convention on the Territorial Sea and the Contiguous Zone, which Iran signed although it did not ratify. Iran’s reservation to the convention didn’t mention Article 18. The United States is a party to the 1958 convention.

The same principle appears even earlier in the work of the International Law Commission (ILC). In its 1956 Report on Articles concerning the Law of the Sea, the ILC included a provision prohibiting charges for mere passage and explained that the exception for “specific services” does not cover general services to navigation, such as “light or buoyage dues.” It refers instead to services rendered to a particular vessel, such as pilotage or towage.

Thus, a strong basis exists for treating the prohibition on transit fees as a rule of customary international law. That conclusion is also consistent with the practice in the Strait of Hormuz itself. Until the war, there was no practice of charging vessels for passage through the strait or connected services. The strait is a natural maritime route with relatively broad areas of deep water, and vessels have never required special services in order to transit it. The only relevant regulation before the war was a traffic separation scheme (TSS) proposed by Iran and Oman and adopted by the International Maritime Organization (IMO) in 1968. The scheme designates separate shipping lanes for maritime traffic entering and exiting the Persian Gulf to reduce collisions and improve safety.  

Iran could not describe a future payment as a fee for “specific services” if the vessels did not choose to receive such services and did not need them. Rebranding a transit charge as a maritime-services fee cannot change its legal character. The ILC commentary makes clear that only individualized services rendered to the ship may incur charges—not general “security, safety, and environmental services.”

The point is reinforced by the controversy over Australia’s 2006 proposal of compulsory pilotage for ships transiting the Torres Strait, between Australia and Papua New Guinea. Australia enacted a criminal offense for ship masters and owners to transit the strait without taking on board an Australian pilot. That initiative was broadly opposed at the IMO, including by the United States and many other states, on the grounds that compulsory pilotage exceeded what international law permits in international straits. 

In defense of the policy, Australia emphasized that the Torres Strait is one of the most hazardous and navigationally difficult stretches of water in the world. Additionally, the IMO approved it as a particularly sensitive sea area, which triggers special measures to preserve and protect the marine environment. Similar conditions do not exist in the Strait of Hormuz. 

Lastly, in the Torres case, Australia emphasized that no attempt will be made to physically enforce the compulsory pilotage regime by denying passage. The vessel will be identified and subject to legal proceedings only when it next enters an Australian port, and thus respects UNCLOS’s obligation not to deny, hamper, or impair the right of transit passage by enforcement activities. So, in any case, Iran would not have the right to stop, search, or make arrests on a vessel in transit through the straits for refusing to pay for its “services.” 

It is important to emphasize that the right of navigation through the Strait of Hormuz belongs to all states. An agreement between the United States and Iran—and even an agreement among all the states bordering the strait and the Persian Gulf—cannot deprive other states of that right without their consent as clear from the 1969 Vienna Convention on the Law of Treaties. The MoU therefore risks inviting Iran to impair freedom of navigation through the strait under cover of its exceptional and baseless interpretation of international law.

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While the way the Hormuz issue was handled in the MoU made the next crisis expected, it happened faster than anticipated, within the first 60 days of “no charge” passage, just a day after this piece was submitted and before its publication. 

On June 25, Iran attacked a Singapore-flagged cargo vessel, the M/V Ever Lovely, passing through Oman’s waters of the strait, hours after the Islamic Revolutionary Guard Corps warned that vessels would be given safe passage only via Iranian routes. This immediately stopped the IMO’s efforts to evacuate vessels still trapped in the gulf from the war. The U.S. military retaliated the next day by striking Iranian missile and drone storage locations and coastal radar sites. A day after the U.S. strikes, another vessel, M/T Kiku, a Panama-flagged tanker, was attacked by an Iranian drone. Additionally, Iran targeted a U.S. naval base in Bahrain and an air base in Kuwait. In response, U.S. armed forces attacked Iranian targets yet again. For a while, it seems the exchanges of fire have stopped, but then it flared up again

On June 28, Iran’s foreign minister, Abbas Araghchi, said that Iran was solely responsible for managing the Strait of Hormuz under the MoU and warned against “interference” in managing routes through the waterway. It is far-fetched to claim that Iran’s obligation in the MoU to “make arrangements” for safe passage in the strait by removing mines and other obstacles it placed there confers on it a right to control passage through the strait generally and especially in the territorial waters of Oman. 

The latest surprise twist in the story is that Trump not only threatens to reinstate the naval blockade on Iranian ports, but also said the U.S would collect a 20 percent toll for passage in the strait as a reimbursement for security expenses for keeping it open. If one could think this is a matter of principle: upholding international law and the freedom of passage through international straits, these last comments are confusing.

Sometimes, ambiguity is not constructive; it is destructive.