Iran’s closure of the Strait of Hormuz has disrupted global markets and sent energy prices soaring. Control of this strategic waterway, even after the two-week ceasefire announced on April 7, is by far Iran’s strongest weapon in the face of American and Israeli firepower and is not an advantage it is going to relinquish willingly. Reports that Iran has begun allowing vessels to cross the Strait by paying a “toll” provides owners and charterers some degree of commercial relief, but they must also consider whether such a payment would create legal jeopardy by violating US sanctions, directly or indirectly.
Below we describe the safe passage framework and discuss the liabilities, both criminal and civil, it creates.
Background
The Strait of Hormuz accounts for approximately 20 percent of the world’s oil supply. In the normal course, roughly 150 commercial ships pass through the Strait each day. Following the US and Israeli attacks that began on February 28, that number dropped to six, or a 95 percent decrease. For oil prices that meant a 35 percent jump from roughly $70 per barrel in February to $128 in early April. While traffic increased slightly over the latter half of March, flow remains significantly impaired and risk remains high, even following the April 7, 2026, two-week ceasefire announcement. And oil is not the only commodity impacted; significant shipments of fertilizers, industrial sulfur and petrochemical feedstocks also pass through the Strait, and are essential for agricultural and chemical industries worldwide.
Verification and Payment Process
Over the past few weeks, the Islamic Revolutionary Guard Corps (IRGC), the primary branch of the Iranian armed forces, has been allowing certain vessels safe passage through the Strait under specified conditions. Legislation has been introduced in the Iranian government seeking to formalize the toll process, justifying it as a duty paid for Iran’s role in “ensuring [the Strait’s] security”[1], but for now the precise details remain in flux given the nature of the conflict and the actors. Generally speaking:
- The shipping lane has been rerouted to be narrower and loop around Iran’s Larak Island to allow for visual inspection and to avoid mines placed by Iran in other parts of the Strait.
- All vessels are required to submit to a verification procedure governed by the IRGC Navy.[2]
- The verification process requires shipowners to submit detailed documentation proving ownership, finance, insurance and trading history details.
- Approval is reportedly being negotiated on a ship-by-ship basis.
- Most vessels will have to pay a fee, so far in cryptocurrency or Yuan.
- While some reports cite a fee of the equivalent of $1 per barrel, it appears that the fees vary depending on the ship’s affiliation, with at least one reported payment of USD $2 million.
- Vessels calling directly in Iranian ports will not have to pay a fee.
- Vessels from countries with direct diplomatic agreements with Iran such as Iraq, India, Pakistan, Malaysia and Vietnam will not be required to pay a fee.
Ships that fail to clear the screening have been turned away, according to a post on X by Alireza Tangsiri, the commander of the IRGC Navy who has since been reportedly killed in an Israeli air strike. And on April 8, the day after the ceasefire announcement, tankers in the Persian Gulf received a radio broadcast that warned they would be targeted with military strikes unless they first gained approval from Iranian authorities: “If any vessels try to transit without permission, [they] will be destroyed.”[3]
Thus, while the April 7 ceasefire may give shippers some comfort in restarting shipments and complying with this process, both sanctions and physical risk remain.
Sanctions Exposure
The toll payments implicate two primary sanctions regimes, both administered by the Treasury Department’s Office of Foreign Assets Control (OFAC) pursuant to the International Emergency Economic Powers Act (IEEPA). First, several administrations have issued a series of Executive Orders (E.O.s) such as E.O. 13599 and E.O. 13846, establishing the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560. These regulations generally prohibit US persons, including entities incorporated in the United States and their foreign subsidiaries, from trading, investing or facilitating transactions with Iran. Second, the IRGC was designated as a foreign terrorist organization (FTO) under E.O. 13224 in 2017, freezing its assets and prohibiting transactions with or for the benefit of the IRGC or persons affiliated with it. Both regimes prohibit transactions routed through US banks or using USD.
Thus, any US entity that pays the toll would directly violate sanctions, as would any foreign entity that pays the toll in USD.
But the risk is not limited to US entities and payments in USD. Under the Countering America’s Adversaries Through Sanctions Act (CAATSA), non-US entities doing business with the IRGC face severe penalties through secondary sanctions. The US government applies secondary sanctions to entities that transact with a sanctioned target but are not subject to US jurisdiction such that the transaction would directly violate US sanctions. However, the civil and criminal penalties for secondary sanctions can be just as harsh as primary sanctions, up to and including inclusion on OFAC’s Specially Designated Nationals (SDN) List and exclusion from the US financial system. Secondary sanctions are used to incentivize foreign firms to abandon transacting with sanctioned entities should they wish to continue operating within the US financial system.
Here, given the administration’s goal of destroying the IRGC, any entity that pays the IRCG toll in any currency is still at risk for secondary sanctions. The administration could, with no notice or process, choose to impose secondary sanctions on entities that pay the toll in order to deprive the IRCG of this revenue stream.
Further, the designation of the IRCG as an FTO creates exposure under 18 U.S.C. §§ 2339A and B, which prohibit providing material support to terrorists or FTOs, knowing or intending that it be used for specific terrorist acts. Penalties for violating these statutes are severe, including significant fines ($50,000 per violation) and lengthy imprisonment (up to 20 years, or up to life imprisonment if the death of any person results from the support).
Civil Repercussions
Beyond sanctions violations, paying entities risk violating contractual representations such as those regarding sanctions and anti-terrorism financing.
Payment and indemnification present another challenge. Owners may try to invoke by analogy a piracy or ransom clause in the charter contract to claim reimbursement of the toll. But there is a risk that such clauses could be challenged as encouraging or facilitating unlawful conduct and therefore violative and unenforceable. Where the contract contains no express clause on “ransom” fees, the owner may argue for an implied indemnity on the basis that the fee was incurred as a direct result of complying with the charterer’s employment orders to transit the strait. The viability of that argument remains to be seen.
Conclusion
This area of the world and the law remain dynamic, to say the least. When determining how to react and how to plan for the future, companies affiliated with shipping and impacted commodities must remain vigilant to all potential angles of risk. Bracewell’s government enforcement and investigations and litigation teams are well positioned to advise on all elements of these decisions.
[1] Priyanka Shankar, “Tehran’s ‘toll booth’: How Iran picks who to let through Strait of Hormuz,”Al Jazeera (Mar. 26, 2026), available at https://www.aljazeera.com/news/2026/3/26/tehranstollbooth-how-iran-picks-who-to-let-through-strait-of-hormuz.
[2] Prior to the April 7 ceasefire, passage was unavailable to ships affiliated with the United States or Israel. While such an explicit prohibition is no longer in place, it remains to be seen whether the IRGC will actually permit passage to US and Israeli vessels.
[3] Richard Meade, “Shipping seeks clarity over Tehran toll booth requirements for Hormuz safe passage,” Lloyd’s List (Apr. 8, 2026), available at https://www.lloydslist.com/LL1156856/Shipping-seeks-clarity-over-Tehran-toll-booth-requirements-for-Hormuz-safe-passage.
