17OCT

Iran builds an insurance toll for August

4 min read

18:37UTC

Iran's Persian Gulf Strait Authority made insurance compulsory on every Hormuz transit on 20 June, free for now, with fees reserved for after the MOU's 60-day window closes around 17 August.

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Key takeaway

Iran rebuilt the banned Hormuz toll as a compulsory-insurance charge timed for mid-August.

Iran's Persian Gulf Strait Authority (PGSA) made insurance compulsory for every Strait of Hormuz transit on Saturday 20 June, supplied free for now by Iranian-approved underwriters⁠¹. The authority reserved the right to charge fees once the Islamabad Memorandum of Understanding (MoU) 60-day window closes, around 17 August. The PGSA is an Iranian maritime body operating under IRGC oversight; readers should hold one earlier fact in view, that Donald Trump ordered the strait reopened with no tolls when he declared the war over.

This charge is that banned toll rebuilt as a maritime-services fee. the MOU's own text reframed transit charges as United Nations Convention on the Law of the Sea (UNCLOS) Article 26(2) service fees rather than tolls, and that is the legal door the PGSA has now walked through. The distinction is not cosmetic: UNCLOS bars a coastal state from charging vessels for the right of transit passage, but permits fees for specific services rendered. Calling compulsory insurance a service lets Iran charge for the strait in a form Washington finds harder to object to than a dollar per barrel.

The mandate carries a sanctions trap. Office of Foreign Assets Control (OFAC) designations still cover the PGSA and its affiliated insurers, so a shipowner who buys Iranian-approved cover transacts with a sanctioned entity without a US licence. The two lanes split the bind. Ships on the Oman route sidestep the PGSA's jurisdiction but cannot obtain its cover; ships on the TSS lanes could buy the cover but would be paying a sanctioned body. Lloyd's List reported the mandate "defies UNCLOS" for vessels routing through Oman's waters⁠².

The design borrows Washington's own enforcement logic. The US polices Russian crude through P&I insurance rather than customs, denying cover to force ships out of the trade. Iran has copied that architecture and pointed it back across the strait, with the fee landing on charterers as a premium that feeds through to freight rates rather than the oil price. The first real test arrives in mid-August, when the window closes and the PGSA can switch the fee on.

Deep Analysis

In plain English

Iran's maritime authority, the Persian Gulf Strait Authority, or PGSA, announced on 20 June that any ship transiting the strait of Hormuz must carry insurance provided by Iranian-approved companies. The insurance is currently free, but the PGSA reserved the right to charge fees from August 2026. OFAC placed the PGSA on its sanctions blacklist under Executive Order 13224. Any shipping company that buys PGSA-approved insurance is transacting with a designated entity, which triggers US secondary-sanctions penalties. Most companies are using the alternative Omani route to avoid PGSA jurisdiction entirely. The August deadline is a countdown to a fee that Iran can only collect if ships return to the TSS lanes.

Deep Analysis

Root Causes

Iran never ratified UNCLOS. Its legal claim to Hormuz jurisdiction derives from domestic maritime law, updated in 2024, which asserts authority over 'hostile-linked vessels.' The PGSA mandate attempts to convert that contested domestic claim into a practical insurance obligation that shipowners must comply with to transit the main channel.

The secondary-sanctions trap deepens the structural conflict: any shipowner who buys PGSA-approved cover transacts with a sanctioned entity (the PGSA is OFAC-designated under Executive Order 13224), exposing themselves to US secondary-sanctions liability. Ships on the Oman route sidestep PGSA jurisdiction but remain uninsured by the main London P&I market, which has not lifted its Hormuz war-risk exclusion.

What could happen next?

Risk
Any shipowner who purchases PGSA-approved insurance before OFAC issues a general licence is exposed to secondary-sanctions enforcement, creating legal risk that most European and Asian operators cannot accept.
Immediate · Assessed
Consequence
The 17 August fee-activation deadline gives Iran a concrete mechanism to pressure the nuclear negotiating track: no final agreement means fees start, which further suppresses Hormuz traffic.
Short term · Reported
Precedent
The PGSA mandate, if accepted by any flag state, would normalise a non-UNCLOS-party state levying maritime-services charges on an international strait, a precedent China has noted with interest for the South China Sea.
Long term · Suggested

Source Landscape

This story draws on neutral-leaning sources from United Kingdom

United Kingdom

Primary parallel: Britain's 1984 miners' strike produced a legal attempt to use domestic law, secondary-boycott provisions, to enforce an international trade restriction by blocking coal imports through dock workers. The courts ultimately rejected the extraterritorial application.

Iran faces the same structural problem: PGSA jurisdiction is domestic Iranian law applied to international waters, and the enforcement mechanism (warning shots, potential vessel seizure) sits at the outer edge of what UNCLOS authorises a strait-flanking state to do.

Counter-parallel: The Panama Canal Authority levies mandatory fees and insurance requirements on all transiting vessels, enforced with the right to deny transit. The Canal, however, operates under a bilateral treaty framework accepted by all flag states. Hormuz lacks any equivalent treaty, Iran's legal authority rests entirely on its domestic law and contested UNCLOS interpretation.

The PGSA mandate creates a binary for shipowners: transit the TSS lanes with PGSA insurance (sanctioned, OFAC-exposed) or use the Oman corridor without it (uninsured by the main London market, though potentially covered by the Lloyd's-Chubb $400m consortium for qualifying cargoes).

The 60-day MoU window closes around 17 August. If no final agreement is reached, the PGSA is legally positioned to activate fee collection from that date. At Iran's prior rate of $1 per barrel in the IRGC-era toll regime, 17 million barrels per day would generate $17 million daily, but only if shipowners use the main channel and pay. As long as the Oman route remains accessible and mine-free, that fee lever has no practical reach.

Consensus view: Lloyd's List's analysis, that the PGSA mandate 'defies UNCLOS' for vessels routing through Oman's territorial waters, identifies the core legal contradiction precisely. UNCLOS Article 26(2) permits maritime-services charges in straits, but only in the state through which the vessel is transiting.

Ships using Oman's corridor are transiting Omani territorial waters; Iran cannot levy a maritime-services charge on traffic that is not in Iranian jurisdiction. The PGSA mandate applies only to vessels in the TSS lanes, which are also the mine-contaminated lanes.

Counter-view: The Islamabad MOU text, published 17 June, explicitly recast the PGSA as a joint Iran-Oman provider of maritime navigation services under UNCLOS Article 26(2). If Oman is formally co-providing the service, and Muscat has not publicly repudiated this framing, then the charge could survive a legal challenge as a jointly administered maritime-services fee rather than a unilateral Iranian toll.

Key tension: Whether Oman's silence on the PGSA's joint-provider claim constitutes acquiescence or ambiguity, and whether any shipowner will test the legal question by paying the Iranian-approved insurer and waiting for an OFAC enforcement action.

Sources:Lloyd's List

Mentions:Persian Gulf Strait Authority →OFAC →UN Convention on the Law of the Sea →Islamabad Memorandum of Understanding →Iran →Strait of Hormuz →Lloyd's List →Muscat →Islamabad →Donald Trump →Persian Gulf →Panama →Washington →United Nations →Oman →

First Reported In

Update #134 · Hormuz shuts as Vance flies to Geneva

Lloyd's List· 21 Jun 2026

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Causes and effects

Caused by

Deal bans the Hormuz toll, licenses its replacement

The UNCLOS Article 26(2) maritime-services framing established in the MOU text is the legal door Iran's PGSA walked through with the compulsory-insurance mandate.

Occurred 17 Jun 2026

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Oman's waters become the only lane

Routing through Oman's territorial waters creates a legal ambiguity that the PGSA exploits: the insurance mandate 'defies UNCLOS' for ships in Oman's waters, making the fee dispute a direct consequence of the lane shift.

Occurred 20 Jun 2026

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This Event

Iran builds an insurance toll for August

The mandate rebuilds the per-barrel toll Trump banned as a maritime-services charge, and traps shippers between a sanctioned Iranian insurer and no Iranian cover at all.

Led to

GL X lapses 21 August; Iran starts transit fees

PGSA mandatory transit fees reserved from 17 August form one of the three convergent August deadline clocks.

Occurred 22 Jun 2026

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IRGC rejects the Oman Hormuz route

The PGSA insurance mandate and post-17 August fees directly underpin the Channel 16 coordination demand the IRGC issued on 25 June.

Occurred 25 Jun 2026

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Insurers cut the price, not the risk

PGSA's mandatory insurance and registration requirements (20 Jun) are the direct cause of London underwriters' OFAC compliance conflict and the zero uptake on the DFC facility.

Occurred 25 Jun 2026

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Different Perspectives

International Energy Agency

G7 members agreed on 2 October to release up to 100 million barrels through the IEA over four months, front-loading diesel.

China

China signed the 15 October text reaffirming the Resolution 2216 arms embargo on the Houthis. The Wall Street Journal reported that Conflict Armament Research found Chinese parts in a Houthi copy of Iran's Kheibarshekan missile.

Russia

Russia joined the 15 October consensus condemning the Houthis, a month after vetoing a mandate for a UN panel of experts on Iran sanctions on 17 September. One Western official told Bloomberg that Moscow is providing Iran with missiles, and the White House rejected the assessment.

India

National Security Adviser Ajit Doval raised seafarer safety with Mohsen Rezaei on 12 October, after a drone hit the Petro Dolphin with 11 Indians aboard at Sohar. External Affairs Minister S. Jaishankar urged that attacks on commercial shipping and seafarers be avoided.

Lebanon

President Joseph Aoun met UN peacekeeping chief Jean-Pierre Lacroix in Beirut on 14 October as UNIFIL winds down before its mandate ends on 31 December. Two days later Qatar's prime minister pledged in Beirut to fund a solar plant for Lebanon.

Kataib Hezbollah

The militia announced a halt to operations except against "hostile aircraft" and denied any disarmament deal with Prime Minister Ali al-Zaidi. A day later Quds Force chief Esmail Qaani urged eliminating "remaining traces of the US presence in other arenas".

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.