23JUL

Iran-Oman draft toll outside US reach

4 min read

19:27UTC

IRNA confirmed Iran is drafting a bilateral transit protocol with Oman; Fortune reports a toll-collection mechanism. Oman's territorial waters cover the southern half of the strait under UNCLOS, placing the levy outside CENTCOM's enforcement geometry.

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Key takeaway

Iran is engineering a Hormuz toll Washington cannot lawfully block by routing it through Oman's UNCLOS waters.

IRNA confirmed on 27 April that Iran is drafting a bilateral transit protocol with Oman to oversee Strait of Hormuz passage ¹. Fortune reports the protocol carries a toll-collection mechanism Iran could not impose unilaterally ². Abbas Araghchi, Iran's Foreign Minister, met Sultan Haitham bin Tariq in Muscat on Sunday 26 April to negotiate the arrangement , six days after an IRGC drone struck Salalah port in Oman's south.

The legal mechanics are doing the work. Under the UN Convention on the Law of the Sea (UNCLOS), Oman's territorial waters extend twelve nautical miles from its coast and cover the southern half of the 33-kilometre chokepoint. A toll administered through a UNCLOS-compliant Gulf state sits outside CENTCOM's enforcement geometry by design. Washington can interdict tankers under the blockade order signed in April, but it cannot override a transit fee imposed inside Omani jurisdiction without picking a fight with Muscat, the only Gulf capital still trusted by both Tehran and the West.

The sequencing alongside Phase 2 of Iran's three-phase Pakistan text matters here. The bilateral with Oman is the operational instrument Iran would point to if Phase 2 stalls; revenue through Muscat does not require Washington's signature. The 1968 IMO traffic-separation scheme governing the strait is jointly operated by Iran and Oman to this day, which gives the protocol an institutional foothold the strait's other framework drafters do not have.

Deep Analysis

In plain English

Iran wants to charge ships a fee for passing through the Strait of Hormuz. If Iran collects that fee on its own, the US argues it is illegal and CENTCOM can block the vessels. Iran's answer is to route the toll through Oman instead. Oman, the country whose coastline runs along the southern half of the strait, has agreed to co-administer a toll collection system with Iran. Because Oman is a respected Gulf state that has signed the international maritime law convention (UNCLOS), a toll collected through Oman sits in a legal grey zone that the US cannot simply override with a military order. Think of it as Iran finding a licensed partner for a business it could not operate alone. The US Navy can stop Iranian ships. It cannot easily stop Omani-administered shipping fees without confronting Oman, which is the one Gulf capital both Tehran and Washington still talk to.

Deep Analysis

Root Causes

The Oman protocol's structural origin lies in a specific legal gap: Iran never ratified UNCLOS, which means it cannot invoke UNCLOS transit-passage doctrine to justify toll collection in the strait. Oman ratified UNCLOS in 1989. A toll collected inside Omani territorial waters under a bilateral protocol with UNCLOS-signatory authority is not subject to the same legal challenge as a unilateral Iranian toll in waters whose legal status Iran contests.

The 1968 IMO traffic-separation scheme is jointly administered by Iran and Oman, which gives Muscat an existing operational stake in Hormuz governance. Iran is exploiting that legacy institutional footprint: by embedding the toll in the existing co-administration framework, Tehran transforms a new revenue mechanism into an extension of a 58-year-old bilateral arrangement that no US naval order has previously needed to override.

What could happen next?

Consequence
If signed, the Iran-Oman protocol creates a revenue stream for Tehran that bypasses both CENTCOM's blockade geometry and OFAC's sanctions architecture, giving Iran economic durability independent of any ceasefire.
Short term · 0.75
Risk
An OFAC designation of any Omani entity involved in toll collection would force Muscat to choose between the toll revenue and dollar-system access, potentially collapsing both the protocol and Oman's mediating role.
Short term · 0.7
Precedent
A signed Iran-Oman Hormuz protocol would be the first multilateral legal instrument governing the strait's toll collection, establishing a template that could outlast the current conflict and constrain future US freedom-of-navigation operations.
Long term · 0.68

Source Landscape

This story draws on centre-leaning sources from Oman and United States

Oman

United States

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Primary parallel: Britain's 1984 mining strike used secondary-boycott law to try blocking coal imports through dock workers, creating a domestic legal instrument for an international trade restriction.

Iran is now attempting the same structural pattern in reverse: using a bilateral maritime administration arrangement with a neutral third state to enforce a revenue mechanism that would be illegal under international law if applied unilaterally. The Oman protocol is the legal instrument that transforms an IRGC toll into a Gulf-state customs authority.

Counter-parallel: Iran ran a functionally equivalent bilateral arrangement with Oman over Hormuz transit in March 2026, when eleven flag states paid IRGC tolls routed partly through Omani waters .

That arrangement operated without a written protocol for six weeks before the CENTCOM blockade reduced transits to near-zero. The difference in the current draft protocol is the explicit written bilateral form: a signed protocol would convert an ad-hoc practice into a legal instrument resistant to US pressure.

Oman's territorial waters cover the southern 12 nautical miles of the 33-kilometre strait. Any vessel transiting the northern channel, inside Iranian territorial waters, would still face IRGC toll demands directly. The Oman protocol's toll mechanism applies to the southern channel, covering approximately half of inbound and outbound traffic.

At the IRGC's reported pre-blockade rate of $1 per barrel in yuan or stablecoins, a bilateral protocol applied to the southern channel at pre-war volumes of 10 million barrels per day (half the 20 million total) would generate $3.6 billion per year in toll revenue for the administering parties.

For Oman, the economic logic is compelling: Sultan Haitham is navigating a period of reduced oil revenue as Oman's own fields mature, and a portion of transit toll revenue from the world's most consequential chokepoint represents a windfall. The $3 billion Saudi debt-assistance package that underpins Islamabad's mediating role (and by extension Oman's) creates a regional incentive structure in which Riyadh also has a stake in the protocol's success.

Consensus view: Quincy Institute for Responsible Statecraft's Trita Parsi and Chatham House's Neil Quilliam both assess the Oman protocol as Iran's most legally durable revenue instrument of the war: by routing the toll collection through a UNCLOS-ratifying Gulf state whose territorial waters cover the southern half of the strait, Iran converts a unilateral revenue claim into a bilateral maritime administration arrangement.

Oman's 1968 IMO co-administration role over the strait's traffic-separation scheme provides the institutional foothold no other party in the three-framework contest possesses.

Counter-view: Heritage Foundation's James Carafano argues the Oman protocol cannot survive a US determination to treat Muscat as a sanctions-compliance risk: if OFAC designates any Omani entity involved in toll collection, Oman's incentive to participate collapses, since Muscat's $7 billion in annual trade with the US and EU far exceeds whatever toll revenue Iran can offer.

AEI's Kenneth Pollack notes Oman's post-IRGC drone strike on Salalah port (six days before Araghchi's visit) as evidence Tehran's leverage over Muscat is coercive, not cooperative, which undermines the protocol's durability as a voluntary bilateral arrangement.

Key tension: Whether the US will treat the Iran-Oman toll protocol as a sanctions-compliance problem for Muscat, which would force Oman to choose between toll revenue and access to the dollar system, or whether Washington will tolerate a UNCLOS-compliant toll to avoid a confrontation with the one Gulf capital trusted by both sides.

First Reported In

Update #81 · Iran writes Phase 3; Trump posts Phase 1

Oman Observer· 27 Apr 2026

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Causes and effects

Caused by

Araghchi reaches Muscat after Salalah strike

Araghchi's Muscat meeting with Sultan Haitham directly produced the confirmation that Iran and Oman are drafting a bilateral Hormuz transit protocol

Occurred 26 Apr 2026

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This Event

Iran-Oman draft toll outside US reach

A toll administered through a UNCLOS-compliant Gulf state is a revenue instrument no US naval order can lawfully block; Iran is engineering around the blockade rather than confronting it.

Led to

Iran files three-phase deal; nuclear last

Iran's Oman bilateral toll protocol is the Phase 2 Hormuz governance mechanism Iran proposes to substitute for the US-rejected unilateral toll, running in parallel to the Phase 1-first diplomatic proposal

Occurred 27 Apr 2026

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Different Perspectives

US money managers (CFTC-tracked)

US money managers had trimmed WTI net long positioning into July's rally, doubting the Hormuz premium would hold without freight or war-risk confirmation, and the crude stock build reported for the week to 17 July gives that scepticism a fundamentals basis. The 25 July CFTC data will show whether Brent's move above $100 changed their calculus.

Asian distillate buyers (Singapore)

Singapore's distillate holders kept retaining middle-distillate barrels as the East-West arbitrage window narrowed further this week, a pattern that sharpened as Fujairah light distillates hit a record low. Cargoes are being held rather than released west into the tightening Mediterranean market.

Bulgaria

Bulgaria secured the removal of Lukoil founder Vagit Alekperov and Patriarch Kirill from the 21st package, with President Rumen Radev calling a personal listing 'shooting ourselves in the foot'. Sofia is protecting its position in Lukoil's EUR 3bn compensation claim over the 2023 Neftohim Burgas nationalisation.

Russia

Russia loses the roughly $14 a barrel of legal headroom the price-cap formula would have released toward $58, even as Urals continues trading below Moscow's $59 budget floor. The shadow-fleet insurance workaround that lets sanctioned crude clear above $44 in practice remains untouched by the freeze itself.

European Union

The EU adopted its 21st sanctions package on 23 July, freezing the $44 Russia oil cap for 12 months rather than letting the formula drift it toward $58, and listed shadow-fleet support vessels for the first time. The package cleared only after three failed Coreper votes.

Marine war-risk underwriters (Lloyd's-linked syndicates)

War-risk syndicates lifted southern Red Sea hull premiums 150% to about 0.75% of hull value after the 20 July blockade declaration, still a seventh of the roughly 5% Hormuz band. Underwriters reset on realised loss, not declared threat, so the 23 July Encelia and Layla strikes set up the next re-mark.