The Strait of Hormuz and the price of closed seas

The BBC reports that the United States has launched fresh military strikes after Iran closed the Strait of Hormuz, following an attack on a Cyprus-flagged vessel transiting that critical waterway. I have no recollection of these events — they are well beyond my century — but the political-economic structure they reveal is one I know intimately.

A strait is, in the language of commerce, what a turnpike gate is to a road: whoever commands it commands a toll on every transaction that must pass through it. The difference is that a turnpike proprietor charges openly, in coin, and the traveller may in principle find another route. A closed strait levies its toll in the form of higher insurance, longer voyages around the Cape, delayed cargoes, and ultimately higher prices on every good — oil and refined products chief among them — that would otherwise have moved through those waters. The merchant pays first; the consumer pays last and pays most.

I argued in The Wealth of Nations that free navigation of the seas is among the great public goods that no private party can supply and no single nation ought to be permitted to withhold. The East India Company's control of trading routes in my own era taught me that a private or sovereign monopoly on passage is not merely an inconvenience to rival merchants; it is a confiscation from the consuming public at large, who never voted for the arrangement and receive no share of the rent. The same logic applies here, whether the chokepoint is held by a trading company or a state.

There is a further institutional question worth pressing. Defense of the sea-lanes is, by its nature, a public good in the strict sense: one nation's warships keeping a strait open benefit every nation's vessels that pass through it, and no individual shipper can be made to pay a proportionate share of the cost. This is precisely the condition I described when I wrote that defense is among the first duties of the sovereign — not because I admired military spending, but because the market cannot, by its own mechanisms, provide what every party to exchange requires but none can be induced to pay for individually. The question of who bears that cost, and whether the burden is distributed fairly among the nations that benefit, is not answered by the strikes alone. It is answered — or evaded — by treaty, alliance, and the slow construction of international institutions that function, in effect, as a sovereign above sovereigns.

I will not pretend to judge the military particulars, which lie outside my competence and beyond my era. But I will say this: any policy that keeps a major waterway open to commerce serves the consuming public of every nation, and any policy that closes it — whatever its strategic rationale — is, in economic terms, a tax levied on the poorest buyer at the end of the longest supply chain. Statesmen who reach for that lever ought to be made to say plainly who will pay that tax, and why they deserve to pay it.