Amid Iran's move to control traffic passing through the Strait of Hormuz, the world's most critical maritime chokepoint has become a litmus test for how far states can go in monetising global trade routes.
Indonesia's Malacca Toll Proposal Withdrawn After Pressure
Indonesia's recent attempt to levy charges on vessels transiting the Strait of Malacca was walked back within hours under intense regional and international pressure. This highlights how any attempt to commercialise such passages now triggers immediate geopolitical and economic alarm.
The question is no longer whether geography determines trade, but how much political control, sanctions and financial leverage can reshape who pays, who profits and who ultimately governs the flow of goods through the world's key trade arteries.
Fragmented Governance of Transit Charges
The system that governs transit charges in global trade is not uniform and varies sharply across air, sea and land routes. It is shaped by an amalgamation of international rules, national authority and practical mechanisms for collecting payments.
Aviation Overflight Fees
In aviation, overflight charges are generally based on established international practices that allow countries to levy fees for aircraft passing through their airspace. These payments are usually routed through formal institutions or designated agencies.
Maritime Transit Charges
In maritime trade, transit charges are closely linked to control over strategic waterways. Countries located along key chokepoints can impose tolls, restrictions or access conditions on vessels passing through their waters. The Strait of Hormuz is a clear example where passage is influenced not only by commercial rules but also by geopolitical tensions, making the transit of goods costly and disrupting global trade.
Land Routes
Land routes operate on a more fragmented basis. Unlike aviation and maritime systems, there is no global mechanism for standardised transit charges. Costs are determined largely through bilateral agreements between neighbouring countries, along with local infrastructure and border arrangements.
Key Maritime Chokepoints
Maritime trade forms the backbone of global commerce, with approximately 80% of international goods moving through sea routes. Straits play a critical role because they are narrow passages where global shipping is naturally concentrated.
The Strait of Hormuz
The Strait of Hormuz is one of the most crucial maritime chokepoints in the world, both geographically and economically. Controlled by Iran, it connects the Persian Gulf with the Gulf of Oman and serves as a critical route for global energy supplies. At its narrowest, it is just about 34 kilometres wide, yet it carries nearly a fifth of the world's oil supply.
The Panama Canal
The Panama Canal connects the Pacific and Atlantic Oceans, offering a critical shortcut for vessels moving between the east and west coasts of the Americas. It reduces travel distance by over 8,000 nautical miles and can cut journeys by nearly three weeks. The canal also functions as a major revenue source, generating billions of dollars annually through tolls charged on passing vessels.
The Suez Canal
The Suez Canal links Europe and Asia through Egypt, eliminating the need to sail around the southern tip of Africa. It significantly reduces transit time for global shipping and carries a substantial volume of international cargo each year. However, its operations have also shown how vulnerable such routes can be, with past disruptions highlighting the risks of congestion and blockage in a single narrow channel.
The Strait of Malacca
The Strait of Malacca is one of the busiest and narrowest shipping lanes in the world, connecting major economies across Asia. Despite its size, it handles a very high volume of global trade traffic. Its strategic importance is heightened by security concerns, including piracy risks, which continue to affect shipping operations in the region.
The Bab el-Mandeb Strait
Located between Africa and the Middle East, the Bab el-Mandeb Strait links the Red Sea to the Gulf of Aden and the wider Indian Ocean. It is another key route for global oil and gas shipments. The area has also seen security challenges, including piracy threats and a growing military presence due to its strategic importance.
What International Law Says About Transit Charges
The United Nations Convention on the Law of the Sea (UNCLOS) clearly states that straits used for international navigation must allow free and uninterrupted transit. Under this framework, countries bordering such straits cannot impose fees simply for allowing ships to pass through. They are permitted to levy charges only for specific services, such as piloting or tug assistance, and even those must be applied uniformly without discrimination.
However, enforcement of such laws remains complicated, particularly because neither Iran nor the United States has formally ratified UNCLOS, even though both have historically adhered to its principles. International law in maritime spaces largely depends on consensus and cooperation rather than strict enforcement mechanisms.
The concept of charging for passage exists in global shipping, but only in specific contexts. Man-made canals like the Suez Canal and the Panama Canal impose transit fees because they are engineered waterways maintained by the countries that operate them. Natural straits, however, are treated differently under international law. Passage through them is generally free to ensure smooth global trade.
Iran's Strategy to Monetize the Strait of Hormuz
What makes the Strait of Hormuz significant is how the ongoing Middle East war has pushed Iran to move beyond traditional control towards actively seeking to regulate and monetise this passage. Tehran is proposing a framework under which ships could be charged variable transit fees depending on cargo and conditions, while also potentially requiring permits or licences to pass. This comes after nearly two months of conflict that saw Iran tighten its grip on the waterway, restricting vessel movement and allowing only limited traffic.
Reports of warnings, attacks and even unofficial payments for safe passage highlight how the Strait is already being used as leverage. By leveraging its position over a critical chokepoint, Iran could offset the impact of Western sanctions while gaining bargaining power over countries dependent on Gulf energy flows.
Air Routes and Overflight Fees
In aviation, the right to charge for using airspace is governed by long-established international rules under the Convention on International Civil Aviation. Countries have full sovereignty over the airspace above their territory, allowing them to levy charges for services such as air traffic control and route management.
These charges must be applied uniformly to both domestic and foreign carriers and should reflect the cost of services provided. In practice, airlines usually pay overflight fees through structured systems, often processed via international industry bodies or designated agencies.
However, recent disruptions in sanctioned or politically sensitive airspaces have shown how this system can break down. Following the closure of Pakistani airspace, Indian carriers have been forced to take longer westbound routes, increasing flight times and operational costs. Air India CEO Campbell Wilson noted that the ongoing ban on using Pakistani airspace has increased flight times to several Western countries by an hour. In Afghanistan, financial sanctions and frozen state accounts have disrupted formal payment channels, forcing airlines to rely on intermediaries.
Land Corridors: Fragmented and Bilateral
Unlike air and maritime routes, land-based trade corridors operate without a single, widely accepted global framework that standardises how transit is priced or regulated. The movement of goods across borders by road and rail depends largely on bilateral or regional agreements between neighbouring countries.
For landlocked developing countries, following these trade routes becomes essential. With no direct access to seaports, they rely on transit through neighbouring states to reach global markets. In most cases, land transit is costlier than maritime shipping.
Land corridors allow greater discretion to individual states. Governments can impose transit fees, customs duties, road usage charges or security-related costs, as long as these are defined within bilateral or regional frameworks. However, political instability or conflict in transit countries can lead to sudden route disruptions or additional restrictions.
By contrast, the European Union offers one of the most integrated land trade systems globally. Under the Treaty on the Functioning of the European Union, goods move across member states without customs duties or routine border checks, supported by harmonised regulations and mutual recognition standards. This creates a near-borderless trade zone that reduces delays and lowers transaction costs.
Conclusion
Global trade no longer moves through a uniform system of rules, but through a layered structure shaped by law, geography and political control. Air, sea and land corridors each follow different logics. While international conventions provide a baseline, enforcement and interpretation vary widely across regions. As global supply chains become more interconnected, even small disruptions in key routes can have disproportionate effects. The result is a trade system that is functional but fragile, efficient in parts but inconsistent as a whole.
