Iran’s hardline demand for a Strait of Hormuz fee system would generate close to $20 billion a year, but such astronomical tolls won’t be accepted by the U.S. or Iran’s Gulf neighbors, geopolitical and energy analysts say. <\/p>\n
That means the ongoing stalemate will drag on indefinitely<\/a> or Iran will eventually accept a lesser, but still substantial, financial payout. Either way, the Middle East and, as a result, global energy markets are forever changed. <\/p>\n “The strait is never going to go back to its\u00a0pre-war status quo,” said Gregory Brew,\u00a0senior analyst for Iran and energy with the Eurasia Group. “There’s going to be a permanently recognized Iranian role in managing the waterway. It’s going to be jointly managed with Oman.” <\/p>\n But that doesn’t mean Iran gets everything it wants. Iran’s calls for a 5% or 7% service fee per barrel of oil\u2014essentially a mafia-style protection racket\u2014are “pure extortion,” said Bob McNally, former White House energy advisor under George W. Bush and founder of the Rapidan Energy Group. <\/p>\n Depending on the exact oil price and volumes, a 5% fee per barrel would create an annual windfall for Iran anywhere from $18 billion to $25 billion\u2014and trigger inflationary cost hikes globally. And that’s only counting crude oil, not liquefied natural gas<\/a>, petrochemicals<\/a>, or other cargoes that rely on the strait. Also, giving Iran fee-collection authority would allow the regime to escalate at any time, denying maritime access, for example, to any country that hosts a U.S. military base. “The toll is not just the financial cost itself; it’s what else Iran does with that level of authority over who goes in and who goes out,”\u00a0McNally said. <\/p>\n That said, “I don’t think the Iranians are really determined to impose heavy tolls,” McNally told Fortune. “They know they won’t be allowed to do that. They’re holding onto tolls right now because they know that’s the best leverage they have for the final deal, whenever it comes, with nukes and sanctions relief and everything.” <\/p>\n Of course, it’s not that simple either, he said. “Iran is not going to cede until it gets everything else it wants, and President Trump is unwilling to give that. Hence, we’re in this prolonged stalemate so long as the oil market is drinking the Kool-Aid and believing everything’s going to be fine, and crude oil prices stay below $100.” <\/p>\n Indeed, the global benchmark for oil futures was trading just below $90 per barrel late on Tuesday\u2014quite high, but well below the war’s late-April peak of $124. <\/p>\n The reality is that a tolling system is illegal under international maritime law, and insurance associations have warned that coverage would be terminated for vessels going through any tolling system, Brew said. “Iran is conscious of the fact that if they squeeze the strait too hard, no one is going to want to use the\u00a0strait, and its value\u2014both as a strategic asset and as a potential source of revenue\u2014is going to decline precipitously.” <\/p>\n Story Continues <\/p>\n Instead, Brew believes an ultimate compromise would mean Iran making an illusory comparison to the Strait of Malacca where there is a smaller, voluntary fee system for services rendered and maintenance. <\/p>\n Instead of a tolling booth setup, such a system could involve Iran’s oil-producing neighbors of the Gulf Cooperation Council (GCC) reluctantly forking over “voluntary” payments to Iran and, to a lesser extent, to Oman for managing the strait. <\/p>\n “An unattractive deal with\u00a0Iran is the best of limited bad options,” Brew said. “The Iranians won’t accept a nominal, minor amount. They’ll want something more substantial and the GCC will likely have to deliver them what they want.\u00a0 <\/p>\n “It also\u00a0likely won’t be entirely public. This may involve a degree of payments to Iran to ensure security in the strait, but which are not acknowledged\u00a0publicly.” <\/p>\n Eyeing next steps <\/p>\n Time is of the essence for the U.S. as the November midterm elections approach and as, this week, the nation’s Strategic Petroleum Reserve dips below 300 million barrels for the first time since January 1983. <\/p>\n At the same time, Iran’s economy continues to spiral, but the Iranian hardliners in charge have shown a willingness to suffer through prolonged downturns, said Dan Pickering, founder of Pickering Energy Partners consulting and research firm. <\/p>\n “The U.S. is looking for an off ramp, but Iran doesn’t want to give that off ramp,” Pickering said. “Their demands have ratcheted up, while the U.S. is trying to ratchet down. You don’t even hear a lot about the nuclear stuff right now.” <\/p>\n Iran has rejected the latest U.S. offers, demanding a return to the June interim deal and more. President Trump is now focused on the U.S. blockade of Iranian oil to exert more financial pressure\u2014and avoiding a military escalation\u2014while helping move anywhere from 5 million barrels a day to 8 million barrels daily through the strait closer to Oman. That’s a lot of oil, but nowhere near the nearly 20 million barrels that once routinely moved through it each day. <\/p>\n