In brief
- The Government of Iran is reported to have imposed, or at least threatened, a toll system for vessels transiting the Strait of Hormuz.
- However, several Iranian government bodies including the Islamic Revolutionary Guard Corps (IRGC), remain designated under UK sanctions. Payment of tolls to these entities therefore carries a risk of breaching UK sanctions.
- Reports indicate that payments under the toll system may be accepted in cryptocurrency. However, such payments would still be prohibited by the UK sanctions regime as crypto payments are treated no differently to payments in conventional currency.
A new poll system
During last week's peace negotiations with the US, it was reported that Iran proposed that vessels transiting the Strait of Hormuz would be required to obtain permission from Iranian authorities and pay a toll, failing which they would risk coming under attack.
The precise mechanics of a toll system remain unclear, particularly given the fact the US has since imposed a naval blockade on Iranian ports and a partial blockade on the Strait. That said, the logistics surrounding the escorted passage of "friendly" vessels through the Strait prior to the peace negotiations may offer some indication of how such a regime could function in practice.
Since shipping in the Strait has been restricted due to the war, it has been reported that some vessels have been escorted through by Iranian forces. Ships from Malaysia, China, Egypt, South Korea and India have been among those allowed to pass since the conflict began. It has been reported that these ships had to submit information about their vessel and cargo to the Iranian authorities before receiving approval to proceed through the Strait. It has also been reported that at least two of these ships paid a fee in Chinese Yuan for safe passage. Media reports remain unclear on exactly who received these payments, although it is likely the Islamic Revolutionary Guard Corps (IRGC) were heavily involved.
Shipping tolls and UK sanctions law?
A number of sanctions relating to Iran's nuclear proliferation activities were reintroduced in late 2025 pursuant to the "snapback" provisions in the 2015 Iran nuclear deal (read more on the snapback mechanism ). Since then, a raft of new designations have been made, and there are now over 500 under the UK's Iranian sanctions regulations. Designated people and entities are subject to asset freezes (among other restrictions).
Designated entities of particular note include the IRGC (and many of its branches); various Iranian government bodies and ministers; oil and gas companies (including the Ministry of Petroleum); and several Iranian financial institutions (including Bank Melli PLC, Saderat, Tejarat, Persia International Bank and the Export Development Bank of Iran).
UK sanctions apply to any individual, business, or organisation undertaking activities anywhere in the UK; any entity incorporated under UK law undertaking activities anywhere in the world; and any UK national wherever they are in the world.
There is a real risk that Iranian toll payments would result in funds or economic resources being made available to, or for the benefit of, designated Iranian entities, and therefore amount to a breach of UK financial sanctions. As noted above, it remains unclear which specific Iranian entity would receive toll payments. However, it seems likely that such payments would be made available to the IRGC or another designated Iranian government body.
Further, payment using conventional currency would likely need to pass through the Iranian financial system, flowing through one or more designated financial institutions. Routing payments through a non-designated intermediary could itself breach the circumvention prohibitions in UK sanctions law.
Cryptocurrency
There have been media reports that the Government of Iran would demand payment for tolls in cryptocurrency. However, the definition of "funds" in UK sanctions legislation is intentionally broad, covering financial assets and benefits of every kind. Moreover, "economic resources" serves as a complementary catch-all to "funds", including assets of every kind, whether tangible or intangible, movable or immovable, that are not funds but can be used to obtain funds, goods or services. This means that payments in cryptocurrency would still fall within the scope of UK sanctions.
Indeed, the Office of Financial Sanctions Implementation (OFSI) has recently worked with UK law enforcement agencies to clamp down on the use of cryptocurrencies to evade sanctions, and has stated that "the use of cryptoassets to evade sanctions is treated no differently to the exploitation of traditional currencies."
The prohibitions also apply to transactions in any conventional currency - including, for example, where toll payments are made in Chinese Yuan or US Dollars.
Consequences of UK sanctions violations
A breach of the UK financial sanctions regime carries both criminal and civil consequences. A breach can result in a prison sentence of up to seven years, or a fine of up to £1 million or 50 per cent of the estimated value of the breach, whichever is greater. OFSI intends to double its statutory maximum penalty amount for financial sanctions to the higher of £2 million or 100 per cent of the breach value.
Civil monetary penalties are now imposed on a strict liability basis, whereas criminal liability arises where, at the time of the relevant alleged violation, the person knew, or had reasonable cause to suspect, that they were violating the relevant financial sanction.
Beyond fines and imprisonment, OFSI has the ability to use its "name and shame" power, which allows it to publish a report that a person or company has breached sanctions even where no monetary penalty has been imposed. A person or entity can also be designated themselves for breach of sanctions, which could result in an asset freeze, travel ban, or director disqualification (among other restrictions) being imposed.
Non-sanctions considerations
Proscription of the IRGC
Separately from any potential breach of sanctions laws, the UK Government announced in early February 2026 that it would introduce new legislation to add the IRGC to the list of terrorist entities proscribed under the Terrorism Act 2000. This would create further complications for toll payment to the IRGC as it is a criminal offence to provide money where a person knows, or has reasonable cause to suspect, that it will or may be used for the purposes of terrorism, including where money is sent to a proscribed organisation.
International law
The general consensus in the international legal community is that freedom of passage through the Strait of Hormuz for innocent vessels is protected by the United Nations Convention on the Law of the Sea, and that the proposed toll would be in breach of international law. This position has been reiterated by Arsenio Dominguez, the secretary-general of the International Maritime Organization. However, neither the US nor Iran is a party to UNCLOS, so a practical remedy for a breach of the treaty would be difficult to obtain.
Commercial disputes
Sanctions breaches may also provide the trigger for a number of other issues – vitiation of insurance claims, defaults under loan agreements, debanking risk, termination of contractual arrangements, supply chain claims, rerouting and disruption, in addition to jurisdictional complexities in such disputes.
US sanctions
Given the focus of the US administration on Iran, businesses should also consider if they have US sanctions exposure. The US imposes similar asset freeze restrictions on Iranian designated persons under its own sanctions regime. However, the US also has a 'secondary sanctions' policy, with measures targeting non-US persons engaging in specific, significant transactions with entities already under primary US sanctions, where there is no US nexus.
There was some relief in global energy markets in March/April 2026 as the US issued a series of time-limited general licences allowing for certain oil transactions that would otherwise have been prohibited by US sanctions. This included Iran General Licence U allowing the sale, delivery, or offloading of Iranian-origin crude oil and petroleum products loaded onto any vessel on or before 20 March 2026. The licence explicitly authorised the import of Iranian-origin crude into the US. Relief under this general licence however is due to cease on 19 April 2026. The US administration allowed for this temporary lifting of sanctions as a means to increase supplies of oil on the global market and help relieve pressure on energy prices.
Whilst the US indicated that lifting sanctions would be part of peace negotiations with Iran, it is unclear whether this remains the case now peace talks appear to have stalled. President Trump has also floated the idea of a 'joint venture' with Iran to charge tolls for passage through the Strait – a position that is not easily reconciled with current US and UK sanctions law and designations.
Conclusion
The threat of Iranian-imposed tolls on vessels transiting the Strait of Hormuz presents significant and multifaceted legal risks for businesses and individuals operating in the sector and region. Given the breadth of UK sanctions designations and terminology, there is a serious risk that any toll payment, whether made in conventional currency or cryptocurrency, would constitute a breach of UK sanctions law. Businesses should seek specialist legal advice before considering any such payment.