Iran Exempts India, China, Qatar and Iraq From Hormuz Restrictions: What Each Side Stands to Gain

Iran has exempted ships from India, China, Iraq and Qatar from its Strait of Hormuz restrictions, a senior Iranian lawmaker said on Tuesday.

Amir Hayat Moqaddam, deputy chairman of the Iranian parliament's National Security and Foreign Policy Committee, told the Iranian Students' News Agency (ISNA) that ships from these countries pass freely, and the Americans do not intercept them either.

Iran effectively shut the strait early in the US-Israel war on Iran, which began on February 28, and the United States reimposed a naval blockade on Iran's southern ports in July. The exemptions for the four countries were announced while that blockade remains in place.

According to Hayat Moqaddam, Iran will receive medicine from India and political backing from China in return. Iran already receives diplomatic support from Qatar, which is leading mediation efforts to end the US-Israel war on Iran.

He also said Tehran will collect transit fees from Indian and Chinese ships, while Qatari vessels pass free. He did not say whether Iraqi ships will pay a toll.

Rouzbeh Parsi, an Iran analyst and affiliated researcher at Lund University, said that whatever the lawmaker says is the rationale, the big question is whether it works and, if so, to what extent. He said Iran has been under sanctions for a very long time, so bartering and quid pro quos in trade are nothing new; the difference now is that it is about poking holes in an embargo and getting crucial goods and services in and out.

Nader Hashemi, an associate professor of Middle East politics at Georgetown University, said most likely Iran is charging a transit fee or a percentage of the cargo value to allow those ships to go through without being harassed.

Wolfgang Pusztai, a security and defence analyst and Austria's former defence attache to Libya, said that if successful, the move will generate significant revenue for Iran, as China is by far the largest purchaser of Iranian crude oil, buying nearly 90 percent of Iran's total oil exports. By including Qatar, with its many liquefied natural gas buyers, and India, he added, Iran is also trying to undermine acceptance of Washington's strategy in the conflict, especially as it charges Qatar no tolls.

All four countries are highly dependent on the Strait of Hormuz for exports. Muyu Xu, a senior crude oil analyst at the analytics firm Kpler, said that of the 10.23 million barrels a day of Gulf crude that passed through the strait in October, about 42 percent went to China and 13 percent to India.

Xu also said Qatar shipped no LNG through the strait in August, but managed 1.8 million tonnes in October. Its crude transits fell over the same period, from 517,000 barrels a day to 193,000, while Iraq's rose from 1.69 million to 2.65 million. Kpler has been unable to trace the origin of up to two million barrels a day of Middle Eastern crude, so both countries' flows may be higher, Xu said.

Iran began letting some vessels from countries it considers friendly pass within weeks of the war starting. In April, its military command said brotherly Iraq was exempt. Pusztai said that with the Iraqi exemption, Iran probably intends to support the economic recovery of its western neighbour, a fellow Shia-majority country.

US Central Command (CENTCOM) has said the blockade applies to all vessels of all nations entering or leaving coastal areas or ports in Iran, while vessels avoiding Iranian ports are not affected. It has also said humanitarian shipments, including food and medical supplies essential for the survival of the civilian population, can pass after inspection.

Ending the blockade is one of Tehran's demands before it will commit to broader peace talks with the US, which will include discussions about Iran's nuclear programme. Qatar-mediated talks currently centre on an Iranian proposal to reopen the strait if the US meets seven conditions, including ending the blockade and lifting sanctions. Pusztai said it seems Iran is trying to separate the questions of free passage through the Strait of Hormuz and oil exports from the nuclear question, adding that the American reaction will show whether this is successful.

Chris Beauchamp, chief market analyst at IG Group, said the exemptions make only limited difference at present. Markets are back to pricing in a peace deal, he said, but if conflict flares up at full tilt, Iranian commanders may not have time to distinguish their targets; at present, he said, the focus remains squarely on the prospects of a broader deal.

An exemption has not guaranteed safety. On October 30, the Qatari LNG carrier Al Mayeda was struck by unidentified objects in the Gulf, its owner, the Qatar Gas Transport Company, said. More than 120 commercial ships have been hit in the region since the war began, with October being the worst month, according to data from the International Maritime Organization and United Kingdom Maritime Trade Operations.