Geography can be a nation's greatest economic asset or its most persistent geopolitical liability. Nowhere is this more evident than in the Strait of Hormuz, where Iran's periodic threats to disrupt shipping have created a stark choice between sustainable prosperity and short-term leverage.
The costs of maritime disruption are well documented. The eight-year closure of the Suez Canal after the 1967 Arab-Israeli war forced vessels to detour around the Cape of Good Hope, dramatically increasing voyage times, freight costs, and insurance premiums. More recently, Houthi attacks on commercial shipping in the Red Sea have shown how even partial blockages ripple through global supply chains, affecting exporters, importers, and consumers from Tokyo to Rotterdam.
Two Models of Maritime Commerce
There are two fundamentally different approaches to leveraging geography: monetizing it through reliable service, or weaponizing it through coercion. Egypt and Panama exemplify the first model. They do not charge for the right to pass through the Suez and Panama Canals; they charge for using man-made infrastructure they built, operate, and maintain. Egypt has earned billions in transit fees for decades without disrupting global trade, because its economic value depends on being seen as a reliable passage. Panama has similarly prospered by efficiently managing one of the world's most important maritime choke points, generating steady toll revenues and supporting a broad ecosystem of logistics, shipping, and financial services.
The Strait of Malacca offers another instructive example. Despite periodic concerns over piracy and regional tensions, Singapore, Malaysia, and Indonesia have consistently treated the waterway strictly as a commercial thoroughfare. Malaysia and Indonesia do not levy canal-style transit tolls because it is an international strait; their benefits come indirectly through ports, bunkering, logistics, ship repair, customs, trade, and industrial activity. Singapore, in particular, has built a major maritime economy around this model. Rather than exploiting its geographic advantage, it invested in maritime security, port infrastructure, and logistics. The result has been remarkable: Singapore evolved into one of the world's leading ports and financial centers, while Malaysia and Indonesia benefited from expanding trade, investment, and industrial growth linked to the uninterrupted flow of commerce through the strait.
Now contrast these with examples of geography used coercively. Iran's constant threats to shut down the Strait of Hormuz have created temporary oil price spikes and also encouraged importers to diversify supply routes, sometimes even justifying a sustained foreign naval presence. This is reminiscent of Russia's actions affecting energy transit to Europe, which only accelerated Europe's efforts to reduce its dependence on Russian oil and gas. Moscow's leverage declined over time as customers diversified.
As one of the world's largest petroleum producers, Iran has a far greater economic interest in ensuring that its own exports move freely through Hormuz than in periodically threatening to disrupt the passage of others. The Strait of Hormuz, like the Strait of Malacca, is a natural international strait. Under the UN Convention on the Law of the Sea (UNCLOS), ships enjoy the right of transit passage, and coastal states cannot simply impose tolls for using the strait because they happen to control its shores. They can charge only for specific services, such as port facilities, bunkering, repairs, and navigation assistance.
This is one of the strongest critiques of Iran's current strategy. Iran possesses perhaps the world's most valuable geographic asset after the Suez and Panama canals. If it consistently guaranteed safe passage through the Strait of Hormuz, it could become a regional shipping and logistics hub, a preferred destination for energy infrastructure, a magnet for foreign investment, and an indispensable commercial partner for Asia, Europe, and the Gulf. Instead, repeated threats to shipping have encouraged countries to seek alternatives — pipelines bypassing Hormuz, diversified energy suppliers, larger strategic petroleum reserves, and greater naval deployments. The very leverage Iran seeks to preserve risks diminishing over time.
The difference is essentially one of strategy: Egypt and Panama monetize confidence. The world pays because it trusts the route will remain open. Iran, by contrast, monetizes uncertainty, seeking geopolitical leverage from the possibility of disruption — but at the cost of investment, trade, and diplomatic goodwill. In the long run, the first model has consistently produced greater and more sustainable economic returns than the second.
The issue is ultimately about the balance between short-term leverage and long-term costs. Iran seeks to leverage its position astride the Strait of Hormuz because doing so provides enormous bargaining power in the moment. It has no legal right under UNCLOS to levy transit charges simply for allowing merchant ships to pass, and even attempting to commercialize access in that manner would be economically self-defeating.
Ultimately, there are two competing models for leveraging geography. The coercive model treats a choke point as political leverage by threatening navigation. The facilitation model keeps trade routes open, predictable, and commercially attractive, generating long-term economic returns. Iran's preference for the former reflects its security calculus: Tehran views the threat to Hormuz as one of its few effective deterrents against militarily superior adversaries. Whether preserving that leverage continues to outweigh the economic costs remains an open question.
For a deeper look at the strategic dynamics, see our analysis: Hormuz Standoff: Why Neither Side Can Win the Strait War. The broader implications for global food security are explored in Hormuz Blockade Threatens Global Food Security, Analysis Shows. And for a perspective on how other nations have resisted economic coercion, read How Australia Resisted PRC Economic Coercion: Lessons for Others.
