Power, Not Paper

How Iran’s Control of the Strait of Hormuz Is Rewriting the Rules

Preface: Iran’s effective closure of the Strait of Hormuz holds many lessons. This short essay addresses three points: the first is an account of the intersection of power and legal doctrine insofar as the regime governing passage through the Strait of Hormuz is concerned. Like much else, the situation is never as clear as mainstream (western) rhetorical flourishes would suggest. Iran has a coherent international law doctrine upon which to stand (even if it isn’t universally accepted), and it has the proven means to back up its position. The second touches on the dynamics of the present “interregnum” - the hiatus marked by the uneasy ceasefire. And the third goes to the implications of protracted closure, on which I turn attention to the effects in Asia economically speaking, before zooming out. The U.S. demanded a test of military strength; so far, it’s been found wanting, but everyone is paying the price for American hubris. Those with a conspiracy-theory bent will say, “of course, that’s part of the plan.”

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The Strait of Hormuz is, right now, the world’s most commented upon 21 nautical miles. Since early March 2026, Iran has been able to throttle commercial traffic through the chokepoint that carries roughly one-fifth of global seaborne oil, a large proportion of gas and a host of other critical chemical products. What began as a wartime closure has hardened into an unfolding management system; a selective-access regime in which “coordination” with the Islamic Revolutionary Guard Corps Navy, inspections, approved corridors and de facto tolls are necessary for safe passage. Traffic today is a fraction of historic volumes. The two-week US-Iran ceasefire announced in early April has stumbled on, now into its fifth week, failing so far to deliver a decisive detente. The first round of peace talks in Pakistan ended without agreement. And then, as of 10 a.m. Eastern Time USA, 13 April, the United States moved to enforce a naval blockade of traffic entering or leaving Iranian ports in the strait. This blockade remains in place (5 May 2026). On 4 May 2026, U.S. President Donald Trump announced “Operation Freedom”, ostensibly offering vessels in the Persian Gulf coordinated and escorted safe passage. Whether this operation is conceived to involve USN escorts is unclear. Either way, Iran has responded that no such passage will be provided without Iran’s say-so. Early reports point to Iranian missile hits on a US naval vessel, though CENTCOM denies this. There are also reports of attacks on UAE infrastructure. In any case, the “fog of war” has yet to fully lift, as of the time of posting.

Doctrine

What we are observing, regardless of the veracity of these reports, is a live demonstration that international law, however elegant on paper, ultimately bends to raw power.

Some have accused Iran of breaching international law through its exercise of the Hormuz weapon and the levying of a charge. However, Iran’s legal position is more robust than many Western commentators would care to countenance, let alone admit. Tehran never ratified the United Nations Convention on the Law of the Sea (UNCLOS). Upon signing in 1982 it explicitly rejected the novel “transit passage” regime in Part III, which grants broad, non-suspendable rights of passage — including to military vessels and aircraft — through straits used for international navigation. Iran insists the older regime of “innocent passage” from the 1958 Geneva Convention applies instead. Under that narrower rule, coastal states retain greater authority to regulate traffic for security reasons. Even if one argues that transit passage has crystallised into customary international law, Iran qualifies as a persistent objector: it has objected consistently and publicly since the 1980s. In international law, persistent objection is a recognised escape hatch. Iran therefore possesses a foundational doctrinal argument that its actions are not simple piracy but sovereign regulation of waters overlapping its territorial sea. That’s the argument, though of course, not everyone would agree with it.

History shows that such doctrinal arguments, if they aren’t accepted upon promulgation, matter only when backed by power — and that exceptions to UNCLOS and such like arrangements are forged in the crucible of war. Consider the Turkish Straits. The 1936 Montreux Convention, negotiated after decades of conflict and great-power rivalry, grants Turkiye the right to regulate warship passage and to charge standardised fees for lighthouse services, pilotage, rescue and medical facilities. These are not mere “tolls for permission to exist” but cost-recovery mechanisms tied to a post-conflict bargain. The convention remains in force because Turkiye demonstrated, through geography and military posture, that it could not be ignored. Similar dynamics produced the Suez and Panama arrangements. No treaty descends from heaven; each reflects to one extent or another some sense of the balance of strength at the moment it was signed.

The Strait of Hormuz is undergoing the same process in real time. Iran’s persistent-objector doctrine provides the legal scaffolding. Its asymmetric capabilities — mines, coastal missiles, drones, fast-attack boats and fleet of mini-submarines — provide the enforcement muscle. The United States, for all its “on paper” air and naval superiority, called the test of strength and blinked. Weeks of escalation culminated in a fragile ceasefire precisely because the costs of sustained convoy operations and potential losses to swarming tactics proved prohibitive. The USS Abraham Lincoln was pushed over 1,000 km away, and the USS Gerald Forde limped away citing “laundry fires.” Washington has now opted for a blockade of Iran’s blockade, hoping to apply economic pressure to Iran and others. The message is clear: even the world’s pre-eminent air and naval power finds the price of restoring unrestricted transit via conventional military means too high. Power has spoken. New rules are being written on the water.

Hiatus

Following the April 2026 hostilities and Pakistan-mediated talks, a two-week ceasefire (since extended) holds tenuously. The US maintains a naval blockade of Iranian ports, while both sides engage in rhetoric and limited diplomatic contacts. Satellite and tracking data indicate ongoing US military build-up in the region. Imagery from the stars also confirms that tankers continue loading at Kharg Island (refer image above, courtesy of Javier Blas at Bloomberg).

The centrepiece of US strategy is economic strangulation via the blockade. Officials aim to trigger an implosion of Iran’s oil sector as storage fills, deprive the Iranian government of hard currency, and force concessions on nuclear and regional issues. The U.S. President and Secretary of the Treasury have both, on a number of occasions, claimed that Iran’s oil production, pumping and storage systems are on the verge o collapse. Meanwhile, President Trump has rejected Iranian proposals to prioritise Strait of Hormuz reopening, insisting the pressure continues until a broader deal. Claims suggest daily losses in the hundreds of millions of dollars for Iran.

This approach rests on shaky assumptions. Iran endured multi-year collapses in oil exports under prior sanctions — dropping sharply post-2012 and after 2018 JCPOA withdrawal — without governmental collapse. The Bloomberg chart shows this clearly.

Long accustomed to sanctions, Tehran has developed non-USD payment channels, barter arrangements and alternative trade networks. Overland routes mitigate maritime restrictions for essential imports. Iran reports around 85% food self-sufficiency, underscoring that it is far more than an oil-dependent state; its diversified (if challenged) economy and societal resilience have been tested by decades of hardship. This food self-sufficiency lays the bedrock for systemwide resilience; after all, a functional society must first and foremost ensure that there’s food for people.

Expert commentary from the oil industry experts, such as Robin Mills from Columbia University’s Center on Global Energy Policy, questions dramatic near-term risks to wells and pipelines from temporary shutdowns. Past resilience suggests additional weeks or months of pressure are unlikely to break either the government in Tehran or popular resolve. Meanwhile, global oil prices have spiked (Brent briefly over $126), raising costs for consumers, including in the U.S., and risking broader economic ripple effects that could rebound faster on the blockader than the target.

Meanwhile, every time Trump extends the ceasefire timelines, he signals a reluctance to re-engage kinetically; this points to deeper concerns. Retaliation risks remain high: Iran could inflict massive regional damage, targeting infrastructure in allied states (including the facilities of the UAE, which have recently exited OPEC to the applause of Washington) and disrupting global energy flows. That the U.S. was unable to defend its regional military bases, now demonstrated clearly by a recent recent report from CNN, is evidence that regional critical infrastructure is these days more vulnerable than ever. A prolonged conflict risks a quagmire — costly, inconclusive and bogging down US forces as well as draining an already depleted magazine — without a clear path to decisive victory. A wide cross-section of analysts, myself included, conclude that the war — initiated by the U.S. — has been a disaster from its perspective, to a point of being already a defeat of strategic proportions. The stasis now embodies what I have framed as the “decent interval” problem: the domestic political necessity of buying time for an exit that avoids immediate humiliation while material realities (Iran’s staying power, global pushback and economic blowback) erode the leverage of maximalist demands. Add to this millenarian apocalyptic zealotry and there’s every reason to believe that there’s little room for the Trump administration to move.

Washington’s blockade-centric pressure campaign appears premised more on hope than robust evidence of rapid Iranian capitulation. Tehran’s demonstrated endurance, adaptive economy, and credible retaliation options tilt the contest of resolve in its favour over the medium term. The standoff highlights the limits of coercive diplomacy when mismatched against a hardened, self-reliant adversary. Negotiations may yet yield a grand bargain, but only if the U.S. confronts these asymmetries and deals with Iran by recognising that Iran has emerged as a regional power, rather than doubling down on unproven levers.

For now, for the reasons I have explained in detail in a recent essay on the escalation trap, eschatological zealotry and the “decent interval” problem, the prospects of the U.S. yielding anything in the near term are remote.

Effects

The latest escalation — that is, the US blockade of Iran’s blockade — of course compounds the disruption to global energy flows. CENTCOM insists the measure is “impartial” and will not impede vessels transiting between non-Iranian ports. In practice, however, the distinction is porous. Insurance markets have already frozen, tanker owners are diverting, and any vessel perceived as aiding Iranian exports risks boarding or worse. Oil flows will be further curtailed, and are in any case subject in part to Iranian protocols.

Yet the impact will not be evenly distributed. Chinese-bound or Chinese-flagged tankers are likely to be partially insulated. Beijing has already secured pragmatic understandings with Tehran; its vessels enjoy a certain degree of preferential access, though this isn’t unfettered or unconditional by all accounts. China’s Foreign Minister, Wang Yi, for instance recently remarked that China had some 70 tankers still upstream, yet to be able to come through the Strait (that’s about 8.5 days of oil for China, by the way, or 2.3% of annual demand, to keep things in context).

Other nations have done the same. Any American attempt to interdict Chinese ships would risk direct confrontation with China — the one direct kinetic escalation Washington, one presumes — trepidatiously, I might add — wishes to avoid. Chinese response through supply-chain strangulation, rare-earth export bans or financial retaliation is a lever the US would be reluctant to lightly trigger. That said, the U.S. is increasingly “trigger happy” and the possibilities of U.S. initiated escalations are both real and slowly rising.

As for American sanctions on Chinese firms buying Iranian oil, these have elicited a direct response from Beijing: sanctioned companies have been instructed to ignore the unilateral declarations of the Americans. Financial mitigations domestically have been guaranteed in the event of losses, but the significance of this response lies elsewhere — it is an explicit drawing of a line, laying the groundwork for a potential maritime encounter. The announcement from Beijing also puts foreign entities on notice: acceding to U.S. sanctions in ways that countermand international law or which adversely impact Chinese sovereignty may well run foul of China’s laws. For companies whose revenues and profitability depend on business with China, they will be watching this space very closely.

Meanwhile, there are reports that at least 34 vessels have slipped the U.S. cordon as of 21 April 2026, with other reports indicating that a further 70 vessels have slipped the blockade since. The result is porosity with Iran’s “friendly countries” — and others, like Japan, to boot — benefiting while others continue to scramble. The short take-out of this situation is straightforward, insofar as immediate implications are concerned: total global oil supplies will fall compared to pre-28 February levels; the U.S. blockade won’t be 100% effective; and modest offsets from increased crude supplies from Russia and the U.S. will partly compensate reductions in flows from the Persian Gulf. Losing in net terms somewhere in the order of 10 to 12 million barrels a day, perhaps a little more, in aggregate terms, when total pre-war global demand was in the order of 105m bpd, isn’t a mosquito bite. Chris Martinsen’s excellent interview on Deep Dive with Daniel Davis is recommended viewing, on this front.

Nowhere is this scramble more acute than in Singapore, with flow-on implications for those national economies tethered to Singaporean refiners. The city-state’s three main refineries on Jurong Island — ExxonMobil, Singapore Refining Company and the integrated petrochemical complexes — were built for a diet of Middle Eastern light-sour crudes. These barrels possess exactly the API gravity, sulfur content and contaminant profile that maximise yields in the complex hydrocrackers, reformers and desulfurisation units that define Singapore’s competitive edge. Talk of “simply sourcing more crude from the U.S.” ignores basic chemistry and engineering. It also ignores the reality that the U.S. is a net importer of crude in normal conditions, as I have discussed elsewhere, with present exports taking place through draw-downs in the nation’s strategic reserves.

American shale crudes are typically lighter and sweeter; heavier Venezuelan or Brazilian alternatives bring different contaminants and require costly process tweaks. Refineries running at 50–60% utilisation — already the reported reality — are operating below stable turndown thresholds. Distillation towers suffer poor fractionation, vacuum units coke prematurely and downstream units see cascading instability. Blending mismatched crudes accelerates fouling and corrosion. Catalyst life shortens. Yields of high-value products — naphtha for petrochemicals, jet fuel and ultra-low-sulfur diesel — fall. Fixed costs are spread over fewer barrels. The economics turn ugly fast.

Singapore is not an isolated victim. It is the pivot of Asia’s downstream supply chain. The island refines and exports gasoline, diesel, jet fuel, bunker oil and chemical feedstocks that keep planes flying, ships bunkering and factories running from Southeast Asia to Australia and beyond. When Singapore runs short, regional prices spike, availability thins and supply chains fracture. Australia, which sources roughly one-fifth of its refined products from Singapore, feels the pain immediately. But so do Thailand, Malaysia, Indonesia, the Philippines and India’s coastal markets. There are no quick substitutes. New tankers take weeks to arrive; alternative crudes require months of trial-and-error reconfiguration; and no other Asian hub possesses Singapore’s scale and integration.

And in this short essay, we haven’t even looked at all the other products affected — fertilisers (see chart below), sulphur, naphtha, natural gas, helium and other assorted industrial chemicals and the like. These create mounting pressures globally, as well as in the U.S. where mid-term elections are sure to test the electorate’s patience and capacity to absorb economic pain.

Outlook

A protracted blockage — whether Iran’s selective choke or the new US-Iran layered restrictions — will not stop at higher pump prices. It will trigger demand destruction on a global scale, though in uneven ways. Oil at sustained triple-digit price levels accelerates inflation, squeezes margins across manufacturing and transport and forces central banks — through the prism of their dominant conceptual frames — into an impossible trade-off between growth and price stability. Industries already teetering, like petrochemicals, aviation and long-haul logistics, will likely see curtailed or suspended operations, and eventual closures. Demand destruction will keep a lid on inflation, of course. Further, shipping lines may well reroute permanently around the Cape, adding thousands of miles and millions in costs. This will drive further transformations in global ship manufacturing, in which China occupies prime position. Refiners worldwide will idle capacity or retool at enormous expense.

There is, of course, a deeper lesson; and that is structural. For decades the world has treated cheap, reliable Middle Eastern oil as a given. That assumption is now shattered. A prolonged crisis will compel painful restructuring: accelerated investment in electrification, hydrogen and nuclear, massive efficiency gains in transport and industry, strategic stockpiling on a scale never before attempted, and diversification of supply chains away from single chokepoints. Nations that treat this as a temporary inconvenience will pay a heavier price. Those that accept the new reality — that power, not parchment, ultimately governs the oceans — will begin the hard work of de-risking their oil dependency now. This transition can be partly cushioned by expanded Russian supplies particularly into the Asian markets, even as Russian refineries on the Black Sea are disrupted by Ukrainian attacks. (I will publish another piece in the near future addressing these dynamics.)

In time, the settlement of a new power structure will deliver ballast to the new rules defined by parchment; but for now, things are in flux. And oil will continue for decades to come to be an important part of the global energy mix.

The Strait of Hormuz has always been more than a waterway. It is a mirror. In it we see the limits of the so-called rules-based order enforced by American unipolar hegemony when the rules collide with geography, capability and will. Iran has demonstrated that a determined coastal state, armed with both legal cover and credible force, can rewrite the terms of passage when compelled to. The United States has shown that even a superpower cannot always enforce the old terms without unacceptable cost.

The rest of us — whether they be Singapore’s refiners, Asia’s manufacturers, Australia’s motorists, Europe’s chemical plants, American farmers and households across many parts of the world — are left to adapt to the new map being drawn in real time. American crude suppliers are exporting to capitalise on higher prices, by dipping into the nation’s strategic reserves. Monetary signals mask depleting real available inventories, not to mention declining EROEI at a structural level.

History tells us that the global economic system will adapt; value flows inevitably do. Moves to innure industries and nations from oil shock risks will intensify. Electrification will accelerate; Chinese technical capability and production capacity is key. Some are better placed than others in this scenario. Prospects of returning to the status quo ante are, however, zero. America’s attack on Iran and Iran’s response have changed reality forever. The only question is how much pain we endure, and who endures it the most, before we begin the structural transformations that these new circumstances call for. The issue isn’t confined to a question of nation-v-nation; ultimately, the effects also are domestically distributional — who within each national economy will be impacted the most and who will make-off as they exploit and manipulate paper markets and plunder desperate firms and households.

In geopolitics, the question of class is never ever far away.