The Strait of Hormuz needs a new model for running things, but copy/pasting the voluntary system used in the Strait of Malacca isn’t going to work.
Iran isn’t just concerned about security; it wants international recognition of its right to control access to Hormuz and collect the associated access fees and tolls. With a clear ability and willingness to disrupt traffic through Hormuz, Iran has forced everyone to take these demands seriously.
Hey everybody. Peter Zeihan here. Coming to you from Colorado’s Front Range…found a gap in the wind. So we’re taking a question from the Patreon crowd. Specifically, there is a lot of talk from all corners true about what to do about the Strait of Hormuz. True. What about replicating what has happened in the Strait of Malacca these last 30 years? Is that a model? Because it’s one that’s being discussed. Great question. The short answer is no.
Let’s talk about what the Iranians are after and then go into the Malacca model. So what the Iranians are trying to get is any sort of even tangential acceptance by the United States that they should be able to regulate the Strait of Hormuz as they see fit, and that includes charging tolls or service fees or whatever. The numbers vary wildly from the equivalent of $0.10 a barrel to $2 a barrel for the equivalent cargo.
So like a supertanker that comes through with a million barrels, that could be anywhere from $100,000 to $2 million per passage. And the Iranians think they should be able to say, whenever a ship comes or goes, that they have the ability to say, you either can’t come, and here’s the toll you have to pay before you can proceed.
And in many ways, they’ve already set something like that up on their side of the Gulf that has been obeyed erratically, I might add. Sometimes they shoot at them even if they’ve paid the toll. But overall, their ability to strike across the entirety of the strait means that people have to take these threats seriously. And it’s very rare now that we have 10% of the cargo going through that used to go through back in January before the war started. So their threshold is pretty high, and they’re demonstrating that if they don’t get their way, they can impose a cost on anyone who defies them, including the US Navy.
Let’s talk Malacca. Now, Malacca, obviously an international waterway, busiest waterway in the world, significantly more so than Hormuz, because most of the stuff that comes through Hormuz ultimately goes through Malacca. In addition to cargo going between the manufacturing countries of Northeast Asia and the consumer economies of Europe. Now, Malacca has a voluntary system that was set up roughly 30 years ago, where countries and governments and bureaus of those governments can voluntarily contribute some cash to maintain safety procedures in the waterway. Sometimes aids to navigation, things like buoys. Sometimes it’s satellite navigation assistance. Sometimes it’s search and rescue, and sometimes, if, and God forbid, there’s a collision, it’s port facilities to help with recovery and repair. The thing is two things. Number one, voluntary. And so a lot of countries, a lot of companies just don’t do anything. And number two, because it’s voluntary, what gets donated is chump change. In the 30 years that this structure has been in place, the grand total of all fees paid, voluntarily paid, is under $50 million. And from the Iranian point of view, that should be in the vicinity of the income they get every 1 to 3 days.
So not a good model. Not saying there is a good model. The question really is a different one, I would argue. We are clearly in a position where the world’s the strongest naval power in human history, the United States, is unable to force a country that doesn’t even have a hull in the water, from making what needs to be a busy waterway nonfunctional. And in that sort of scenario, it’s honestly just a matter of time before the rest of the world, grudgingly, and maybe looking the other way, accepts that fact.
And when that happens, we will have taken one of the world’s great international waterways, Hormuz, and turned it into some sort of toll system. And when that happens, we will have formally or informally broken with over a century of international maritime law that makes specific waterways open for all for free. Because once Hormuz falls, we have to revisit that issue with every other waterway that is like Hormuz.
That’s a better question. We’re going to tackle that one tomorrow.
