Iran wants a mafia-style ‘protection’ toll on the Strait of Hormuz, but the eye-popping $20 billion per year haul is a pipe dream

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Iran’s proposed Strait of Hormuz fee system could generate billions annually, reshape Gulf security, and permanently alter global energy markets.

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.

That means the ongoing stalemate will drag on indefinitely 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.

“The strait is never going to go back to its pre-war status quo,” said Gregory Brew, senior 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.”

But that doesn’t mean Iran gets everything it wants. Iran’s calls for a 5% or 7% service fee per barrel of oil—essentially a mafia-style protection racket—are “pure extortion,” said Bob McNally, former White House energy advisor under George W. Bush and founder of the Rapidan Energy Group.

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—and trigger inflationary cost hikes globally. And that’s only counting crude oil, not liquefied natural gas, petrochemicals, 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,” McNally said.

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.”

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Iran wants a mafia-style ‘protection’ toll on the Strait of Hormuz, but the eye-popping $20 billion per year haul is a pipe dream

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