The previous article on the Strait of Hormuz discussed the effect of geography on its politics. This article explores the connection between the geography and economy of the area.
The narrow Strait of Hormuz has been a commercial link between successive civilisations and empires around the Persian Gulf and the rim of the Indian Ocean. The oldest known economic use of the Strait is evident during the Sumerian empire (~3500 BC). The presence of Sumerian artifacts in Harappa, and Indus Valley seals, teakwood and precious stones in the ancient Tigris-Euphrates sites proves that these contacts were frequent and widespread. These interactions were so extensive that it led historian Toynbee (A Study of History, Vol. I, pp. 416-423) to suggest that the Indus Valley was an outpost of the Sumerian civilisation; just as Troy was an external colony of the Greek Mycenaean civilisation. Later studies proved this belief to be wrong and the Indus Valley emerged as one of the original cultures in its own right. There is also evidence of copper from Oman crossing the Strait to support the Bronze Age metal work in Mesopotamia. There is no evidence of anyone inhabiting the Strait in those times, or of anyone levying tolls on boats passing through.
The Persian Achaemenid Empire, perhaps having originated from Fars in the neighbourhood of the Strait, were the first to recognise the importance of the water channel as a strategic economic asset and levied a toll. All subsequent powers in the area, including the Greeks, Sassanid, Arabs, Safavid and the Portuguese followed the same strategy: control this chokepoint and collect tax.
The economic value of the Strait was evident to every ship passing through. There is an Arab saying that "If all the world were a golden ring, Ormus would be the jewel in it". It signifies the rich potential of the site and the desire of regional and international powers to exert political control over it. As empires and civilisations emerged in Mesopotamia, trade through the Persian Gulf gained importance. Historian al-Yaqubi (d. 897 AD) observed about Abbasid Baghdad, “So many goods are imported to it from India, Sind, China, -------, Ethiopia, and other countries that there may be more of a commodity here than in the country from which it was exported.” This trade transited through the Hormuz, which was then under Abbasid suzerainty.
Marco Polo visited the port of Bandar Abbas in 1272 and 1293. He reported trading in Persian jewellery, ivory and silk of Indochina, and pearls from Bahrain in the bazaar of the port of Hormuz. Ibn Batuta too passed through the port and spoke highly of its trade. Before the Portuguese entered these waters in the early 16th century, Hormuz was one of the ports visited by the Chinese expeditionary fleet commanded by Admiral Zheng He in the early 15th century. His chronicles mention the port in a positive light as a wealthy town with refined people who were well dressed and elegant. This wealth resulted from tolls collected on shipping; else there was little or no trade of goods taking place on the island itself.
The Kingdom of Hormuz (11th century to 1622) was centred on the Hormuz Island and on the Persian coast of the Strait. It was established by Omani Arabs. They too introduced a toll on all shipping passing through these waters. The Kingdom survived as a protectorate of whoever was strong in the area, including first the Mongol Il-Khanate, the Safavids and finally the Portuguese.
The Era of Tolls and Protection Rackets
When the Portuguese found the sea route to India, they immediately realised the economic value of the strait. Making Goa the centre of their Indian Ocean empire, they conquered the Island of Hormuz and the town of Gomrun (modern Bandar Abbas), and monopolised the trade and passage through the Strait and the Arabian Sea by introducing the Cartaz system. This system was nothing but a protection racket and a forced tax on all shipping in these waters. A paper or cartaz had to be obtained from the Portuguese on payment of a hefty fee before any vessel could sail through the Strait, or undertake a voyage between India and Jeddah for pilgrimage or trade. All non-toll paying vessels were sunk or confiscated. By the early sixteenth century, customs revenue from transit trade was estimated by Portuguese sources at roughly 200,000 cruzados annually, a huge number given that the entire Portuguese crown’s total annual revenue in 1534 AD was about 1.1 million cruzados. This racket lasted for over a hundred years from 1515 to 1622 before the combined Persian (Shah Abbas I) and British Navies (BEIC) ousted the Portuguese.
It was under these political developments that the powerful sea-going tribe of Al Qasimi of Ras Al-Khaimah, who had their own ambitions in the area, took to attacking and robbing Omani and Western vessels, and exacted their own share of revenue for over a hundred years. They were designated as pirates by the British though the latter had not designated the Portuguese for similar activities. This discriminatory attitude puts into question “piracy” itself as a concept. Ras Al-Khaimah remained the centre of this piracy till the British and the Omanis combined to sack the city in 1820. The Al Qasimi tribe continues to rule the State as well as the state of Sharjah, first as a British protectorate and then as part of the UAE.
Before the British led a campaign to have the right of toll-free innocent passage through the seas become part of the then world order, primarily because it suited their trading activities, the collection of tolls through coastal areas was a standard practice. The most important of these tolls were the ‘Sound Dues’ charged by the Danish government for four centuries between 1429 and 1857. The 118 km long Oresund strait between Denmark and Sweden is 4 km wide at its narrowest point. In the 16th and 17th centuries, these tolls constituted two-thirds of the total revenue of Denmark. Ships avoiding the toll were either sunk or confiscated. The toll was abolished only when the US refused to pay and was ready to back up its refusal with force. The Danes couldn’t resist this demand for free passage and abolished the tolls. Türkiye charges a toll for transit through the Bosporus and Dardanelles, terming it as a maintenance fee, which amounts to over $300 million annually, as does Chile for passage through the Magellan Strait, but calls it a ‘pilot services’ fee amounting to $70,000 for vessels of 30,000 gross tonnage, and higher for large ships. The same is the case with national airspace where a transit fee is applied for each aircraft flying through any national airspace as well as for Air Traffic and navigation services. The Strait of Hormuz too has been a revenue generator and retains that potential on a similar scale.
The Modern Geopolitical Landscape
Now that its economic history has been overviewed, the current status of the Hormuz can be evaluated. As mentioned above, since the expulsion of the Portuguese from the island in 1620, it has been under Iranian political control and operating under the toll-free framework that suited British trading activities. When the UAE became an independent country in 1971, British interests were taken over by the US, and that’s where the situation rested till this March-May war.
Wars by their nature are agents of forced change in geo-political and geo-economic fields. The current US-Iran war, though as yet inconclusive, will also change many realities. The first of these would be the status of tolls for ships transiting the Hormuz. Toll-free transit has been backed by the Convention on the Law of the Sea and International Court of Justice decisions. However, an unprovoked attack by the US and Israel on Iran is also against every international and UN convention and treaty. The old-world order has thus been obliterated by these two aggressive powers, sending the world into unchartered waters. In his hubris, President Trump has brought hardships not only for the people of Iran but also of the US and everywhere else in the world.
Before the war, nearly 100 ships passed through these waters daily including large crude tankers as well as container ships. The potential of the Strait for a toll is between 40 to 100 billion dollars per year, depending upon whose estimate is considered realistic. It’s an open question whether the US has the will and the capacity to reopen the Strait for toll-free passage, as demanded by the rest of the world, or if the Iranians have the levers to impose a levy. Tolls will increase the price of crude by up to a dollar per barrel and Iranians are known to have charged up to a maximum of $2 million for large crude carriers during the Hormuz blockade.
The result of this war is still undecided. Writing for The Atlantic magazine, the ultra-conservative and imperialist author, Robert Kagan, admits in his article titled ‘Checkmate in Iran’ that the US has suffered a strategic defeat and the world will accelerate towards a post-US order. Diplomacy has created a ceasefire but negotiations for a permanent end to hostilities are very intricate and slow due to a complete lack of trust between the belligerents. This uncertainty can lead to renewed fighting. There can be no verdict on the future status of Hormuz but its status is certain to undergo a significant change. Not only the Hormuz, in the coming uncertain times, the toll-free status of other naval chokepoints is also hanging in the balance.
As for Pakistan, there is an old curse that says, ‘May you live in interesting times.’ With a precarious ceasefire with nuclear India, violent skirmishes with Afghanistan, a war across the Iran border involving two nuclear powers, an ongoing insurgency in Baluchistan and KP, a weak economy and a derailed political system, we are living in really very interesting times.