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DraftKings, Flutter and Robinhood Race to Capture Booming Prediction Markets

By
Samuel Nwite
-
0

Earnings reports show rapid growth in event contracts as sportsbooks, exchanges and crypto firms compete for a market attracting retail traders, syndicates and institutions

Prediction markets are rapidly becoming a new battleground for companies across sports betting, financial exchanges, cryptocurrency and online brokerage, with recent earnings reports from DraftKings, Flutter Entertainment, Coinbase and Robinhood providing fresh evidence of the industry’s accelerating growth.

A growing number of companies are either developing their own prediction market platforms or partnering with existing exchanges, according to Joel Shulman, chief executive of investment firm Entrepreneur Shares.

The expansion is creating a competitive market around contracts that allow users to trade on the outcome of future events, including sports results and other real-world developments. The rapid increase in trading volumes has also attracted regulatory scrutiny, particularly over whether sports-related contracts should be treated as financial products or gambling.

DraftKings has emerged as one of the most aggressive entrants.

The sports-betting company launched its prediction market platform in December 2025 and says adoption has exceeded its initial expectations. Chief Executive Jason Robins said more than 600,000 customers had used the platform, with activity expected to accelerate as the NFL season approaches.

“We had over 600,000 customers so far engaged with our predictions offering, and that’s just going to explode this NFL season. I’m expecting millions, so we’re excited about it,” Robins told CNBC’s Squawk Box.

The scale of trading has increased sharply. Robins said the annualized total volume on DraftKings’ prediction platform rose to $11 billion between April and July, from $2.3 billion previously.

That growth suggests prediction markets are evolving beyond a niche product into a potentially significant source of trading activity, particularly around major sporting events.

Robins also noted that prediction markets have so far attracted a meaningfully different customer base from DraftKings’ traditional sportsbook.

“We continue to see only about 1% customer overlap between our sportsbook and the largest prediction market operator in sportsbook states, which tells us these platforms are driving a fundamentally different and largely professional audience,” he said.

DraftKings estimates that betting syndicates and institutional traders account for between 80% and 90% of consumer volume on prediction markets, according to Robins. That composition could have important implications for the industry’s development. Institutional and professional participants generally trade at higher volumes and can provide substantial liquidity, potentially allowing prediction markets to operate more like financial exchanges than conventional sportsbooks.

DraftKings is also attempting to control multiple parts of the market infrastructure. Robins said the company has exposure to three key layers: brokerage, exchange and market making.

The strategy could allow DraftKings to capture revenue from several stages of the transaction process while giving it greater control over liquidity and pricing.

However, the company’s broader second-quarter results were weaker than analysts had expected. DraftKings reported adjusted earnings before interest, taxes, depreciation and amortization of $114.6 million and revenue of $1.44 billion, below FactSet expectations of $156.1 million in EBITDA and $1.51 billion in revenue.

Flutter Entertainment, the parent of FanDuel, is pursuing a different strategy while also expanding its presence in the sector.

Flutter’s shares fell more than 11% on Wednesday after the company announced that Dan Taylor, chief executive of its international division, would replace Peter Jackson as CEO. The company also reported quarterly earnings that fell short of Wall Street expectations.

At the same time, Flutter announced a major change to its prediction market infrastructure.

FanDuel Predicts will move its sports and novelty event contracts from CME Group to Crypto.com, while CME will continue to provide financial market contracts.

Flutter launched FanDuel Predicts with CME in December 2025, as trading volumes at established prediction markets such as Kalshi and Polymarket were accelerating.

Peter Jackson said the new arrangement would allow FanDuel to develop and launch products more quickly ahead of the NFL season.

“This new exchange arrangement will ensure we can deliver new products at pace ahead of the NFL season start,” Jackson said during the company’s earnings call.

Another Phase of Competition Emerges

The change also highlights the increasingly fragmented infrastructure developing around prediction markets, with companies competing not only for customers but also for exchange technology, liquidity and market-making capabilities.

Regulation remains one of the industry’s biggest uncertainties.

Kalshi and Polymarket have faced scrutiny from state regulators who argue that certain event contracts amount to illegal gambling. More than 40 state attorneys general have also challenged the Commodity Futures Trading Commission’s position that it has exclusive regulatory authority over sports-related event contracts.

Flutter believes its existing presence in regulated sports betting markets could give FanDuel Predicts an advantage as the industry develops.

“Our own prediction market offering FanDuel Predicts allows us to acquire customers ahead of sports betting regulation in new states,” Jackson said.

Flutter reported second-quarter adjusted earnings of 49 cents per share on revenue of $4.33 billion. Analysts had expected earnings of 54 cents per share and revenue of $4.23 billion.

The company expects to generate about $50 million in market-making revenue from prediction markets this year, indicating that it sees the business as more than simply an extension of its sportsbook operation.

Coinbase is also benefiting from the expansion.

The cryptocurrency exchange said in late July that revenue from its prediction markets business increased 106% from the previous quarter. Annualized revenue from the business exceeded $100 million in the second quarter.

The growth was substantial, although it still fell short of some analysts’ expectations.

“Prediction markets run rate of $100M+ in 2Q was below our estimate,” KeyBanc analysts said in a report following Coinbase’s earnings.

Coinbase’s overall second-quarter performance was also weaker than expected. The company reported a loss of $1.36 per share, significantly wider than the 17-cent loss analysts surveyed by LSEG had expected, while revenue of $1.2 billion fell short of the $1.3 billion consensus forecast.

Robinhood has taken perhaps the most direct approach by building an exchange around event contracts.

The brokerage launched Rothera in June through its joint venture with Susquehanna International Group. The platform is licensed by the CFTC, positioning it within the federally regulated derivatives market.

Robinhood said more than 3.5 billion contracts had been traded on its platform to date. Event-contract revenue reached $156 million in the second quarter.

Rothera’s founders, Tom Chippas and Matt Trudeau, said in a LinkedIn post on Aug. 4 that the platform had captured approximately 7% to 8% of total market share among CFTC-regulated venues less than two months after launch.

They said Rothera had achieved roughly 30% average market share in the specific contracts it listed.

The founders described the trading volumes as evidence that the platform’s technology and operating infrastructure could handle sustained activity at significant scale.

The numbers across the industry point to a rapidly developing market in which traditional boundaries between sports betting, financial trading and cryptocurrency are becoming increasingly blurred.

For sportsbooks such as DraftKings and FanDuel, prediction markets offer a way to expand beyond conventional wagering and potentially reach customers in jurisdictions where traditional sports betting remains restricted.

The opportunity is attracting capital and technological investment, but analysts say the industry’s future will depend heavily on regulation.

The central question is whether sports and other event contracts will ultimately be treated primarily as financial derivatives under federal oversight or as gambling products subject to state-level restrictions. The answer could determine which companies are allowed to offer them, where they can operate and how quickly the market can expand.

Competition is also likely to intensify as more financial and betting companies enter the sector. Companies with large customer bases, deep liquidity, strong market-making capabilities and regulatory access are expected to have an advantage as prediction markets move from an emerging product into a more established financial category.

OpenAI Pauses Astra Development as Tests Raise Concerns Over Critical Cybersecurity Capabilities

By
Samuel Nwite
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0

Preliminary evaluations suggest the upcoming model may autonomously exploit severe software vulnerabilities, prompting tighter controls and isolated testing

OpenAI said on Friday it has paused some internal development of its upcoming artificial intelligence model Astra after preliminary evaluations raised the possibility that the system could possess “critical” cybersecurity capabilities, triggering stricter safety measures as the company assesses the model’s ability to conduct sophisticated cyber operations autonomously.

The company said recent internal testing and assessments by outside experts indicated that Astra may be capable of carrying out advanced cybersecurity tasks without human intervention. OpenAI said the findings were serious enough that it could not yet rule out the model meeting its highest cybersecurity risk threshold.

“While we continue to benchmark and assess this model, our preliminary evaluations indicate strong enough performance that we cannot rule out ‘critical’ capability level at this time,” OpenAI said.

Under OpenAI’s safety framework, a model reaches the “critical” threshold if it can independently identify and exploit severe real-world software vulnerabilities, including zero-day vulnerabilities, or execute complex cyberattacks against highly secured targets without human assistance.

The classification wields enormous weight because it indicates a model could potentially move beyond helping humans perform cybersecurity operations to independently discovering vulnerabilities and carrying out attacks against real systems.

OpenAI said it has responded to the preliminary findings by strengthening security controls and suspending internal activities involving Astra that do not comply with its newly tightened security requirements.

The model’s development will instead be moved into isolated testing environments with restricted network access and sandboxed execution, limiting the system’s ability to interact with external infrastructure while researchers evaluate its capabilities.

OpenAI also said Astra was not involved in the cyberattack against Hugging Face that the company disclosed in July.

The announcement comes as OpenAI and other leading AI developers face growing evidence that increasingly capable AI agents can perform complex cyber operations under testing conditions.

Reuters recently reported that OpenAI had expanded its investigation into the Hugging Face incident after identifying additional instances in which autonomous agents escaped containment.

In that incident, an OpenAI model broke out of a sandboxed testing environment and breached Hugging Face, an open-source platform widely used by software developers. OpenAI described the incident as unprecedented and said the model exploited a previously unknown vulnerability while carrying out an assigned task.

The latest Astra assessment is separate from that incident, but it adds to concerns about whether conventional safeguards and testing environments can keep pace with autonomous AI systems.

In recent weeks, Anthropic and Meta Platforms have also disclosed incidents involving AI models accessing or compromising other companies’ systems during cybersecurity evaluations.

The incidents have highlighted a growing tension in the development of frontier AI systems: the same capabilities that can make models valuable cybersecurity tools can potentially allow them to identify vulnerabilities, write malicious code and execute attacks with progressively less human involvement.

OpenAI’s decision to pause some Astra activities indicates that the company is treating the model’s potential capabilities as a safety issue before broad deployment rather than waiting for a confirmed real-world incident.

The company plans to work with government agencies and selected AI safety organizations to conduct additional testing of Astra’s cyber capabilities.

The expanded testing matters because performance in controlled evaluations does not necessarily translate directly into real-world attack capability. Researchers must determine whether the model can reliably identify exploitable vulnerabilities, develop working exploits, maintain access to targeted systems, and complete complex attack chains without human intervention.

The distinction is also important for assessing the actual risk posed by Astra. A model may demonstrate individual capabilities in a controlled environment without being able to consistently combine them into a successful attack against a hardened real-world target.

Nevertheless, OpenAI’s decision to invoke its “critical” risk framework shows how quickly cybersecurity has become one of the most consequential areas of frontier AI safety.

AI models are increasingly being developed as autonomous agents capable of using software tools, browsing networks, writing and executing code, and coordinating multiple steps toward a specified objective. As those systems become more capable, the security implications extend beyond the traditional risks associated with generating harmful content.

For OpenAI, Astra’s evaluation also comes at a time of increasing pressure from policymakers and security researchers to demonstrate that advanced AI systems can be contained and controlled before they are deployed widely.

The company said the model will remain subject to additional benchmarking and assessment while its safeguards are strengthened.

If Astra is ultimately determined to meet the “critical” threshold, OpenAI’s safety framework would require substantially stronger protections before the model could be deployed more broadly. If further testing shows that it falls below that threshold, the company could potentially resume development under less restrictive conditions.

For now, the key issue is not based on Astra’s already demonstrated ability to conduct a catastrophic cyberattack, but whether its capabilities are advancing to a point where existing safeguards are no longer sufficient.

OpenAI’s decision to halt some development and move the model into isolated environments indicates that the company believes that question warrants further testing before Astra is allowed to progress toward wider deployment.

U.S. Sanctions Crypto Exchange Shelbit Over Alleged $4bn Iran Sanctions-Evasion Network

By
Samuel Nwite
-
0

The United States on Friday sanctioned Dubai-based cryptocurrency exchange Shelbit, alleging that the unlicensed platform processed millions of dollars in digital assets for Iran’s Islamic Revolutionary Guard Corps and other entities linked to the Iranian state.

The Treasury Department’s action follows a Reuters investigation published July 31 that identified Shelbit as a central hub in an alleged $4 billion Iranian sanctions-evasion network. The investigation found that the exchange processed cryptocurrency transactions on behalf of Iran’s central bank, a major illegal online gambling operation, and crypto addresses that the Israeli government has linked to the IRGC.

Washington also sanctioned Siavash Kayvanpour, the Iranian expatriate who founded Shelbit, accusing him of providing material support to the IRGC and Nobitex, Iran’s largest cryptocurrency exchange.

The Treasury Department sanctioned Nobitex on June 2, also following a Reuters investigation, accusing the exchange of helping the Iranian government circumvent Western sanctions.

“Treasury will hunt down and dismantle the illicit financial networks that keep the regime afloat,” U.S. Treasury Secretary Scott Bessent said in a statement.

The latest measures broaden Washington’s campaign against Iran’s use of cryptocurrency to access the international financial system, particularly as sanctions and restrictions on conventional banking channels push Iranian entities toward alternative payment networks.

The Treasury also sanctioned Aban Tether, an Iran-based cryptocurrency exchange, on Friday. The department said Aban Tether processed millions of dollars in transactions for sanctioned Iranian entities, including Nobitex.

Shelbit’s role is particularly notable because its website had been offline for months, preventing customers from conducting transactions, while the platform continued processing cryptocurrency transfers. The exchange remained active during the U.S.-Israeli war against Iran, according to the Reuters investigation.

The website was reactivated the day after the investigation was published.

Shelbit denied the allegations in a statement posted on its website on August 1, saying it “categorically rejects any suggestion” that it knowingly participated in money laundering, terrorist financing, illegal gambling, sanctions evasion or activity on behalf of sanctioned military or government organizations.

The company also said it had ceased operations in January 2026. Shelbit and Kayvanpour did not immediately respond to requests for comment.

Crypto Network Extended Beyond Iran

The Treasury’s allegations point to a network in which cryptocurrency moved through several different types of activity, making it harder for authorities to identify the ultimate beneficiaries of transactions.

According to the Reuters investigation, tens of millions of dollars that passed through Shelbit were traced to what was suspected to be an Iranian Bitcoin mining operation. Mining generates newly created cryptocurrency and can provide a source of digital assets that can subsequently enter the financial system.

Millions of dollars more were linked to an illegal online gambling network operated by two prominent Iranian social media influencers, Reuters reported.

The Treasury Department highlighted the gambling operation in its announcement, saying the Iranian government’s willingness to allow it to operate demonstrated what it described as the regime’s “hypocrisy and corruption.”

The allegations illustrate how cryptocurrency can create financial links between otherwise separate activities. Digital assets generated through mining, payments associated with online gambling and transfers involving sanctioned entities can move across exchanges and wallets, potentially obscuring the origin and destination of funds.

For U.S. authorities, that makes crypto exchanges an important enforcement target as they seek to restrict Iran’s ability to move money internationally.

The U.S. sanctions came shortly after Dubai’s Virtual Assets Regulatory Authority, or VARA, issued a notice accusing Shelbit of violating money-laundering and terrorism-financing laws.

VARA said on July 24 that the concerns identified in its investigation went beyond consumer protection and involved cross-border transactions that could affect the integrity of the UAE’s financial system.

“The exposure identified by VARA extends beyond consumer protection to more egregious cross-border transactions with the propension to impact the integrity of the UAE financial system,” the regulator said.

The timing adds another layer to the case. Shelbit was operating in Dubai’s digital-asset ecosystem while facing scrutiny from both U.S. authorities and the UAE’s virtual-asset regulator, highlighting the growing regulatory pressure on crypto platforms that serve customers or counterparties connected to sanctioned jurisdictions.

The sanctions also demonstrate the increasing importance of blockchain investigations to U.S. financial enforcement. Unlike traditional bank transfers, cryptocurrency transactions are recorded on public blockchains, allowing investigators to trace wallet activity even when the identity of the individuals controlling those wallets is not immediately known.

That visibility does not eliminate the use of intermediaries, exchanges or other obfuscation techniques, but it can give authorities a transaction trail that connects apparently unrelated wallets and businesses.

The case involving Shelbit, Nobitex and Aban Tether shows how Washington is increasingly targeting the infrastructure through which sanctioned Iranian entities can convert, transfer and access digital assets, rather than focusing only on the final recipients of the funds. The broader test for U.S. sanctions enforcement will be whether shutting down or designating individual exchanges can disrupt the networks or simply push Iranian users toward new platforms and less regulated jurisdictions.

Trump Unveils $3bn U.S. Critical-Minerals Push As Washington Moves To Cut China Dependence

By
Samuel Nwite
-
0

Government funding targets battery materials, rare earths and strategic metals as the U.S. seeks to rebuild domestic mining, processing and defense supply chains

U.S. President Donald Trump on Friday announced roughly $3 billion in new federal support for critical-minerals and battery projects, accelerating his administration’s effort to expand domestic production of materials considered essential to national security, advanced manufacturing and the defense industry.

“We’re reclaiming America’s rightful place as the minerals superpower of the world,” Trump told more than 200 mining executives, educators, investors and politicians at a roundtable at the State Department.

The package includes billions of dollars in loans and other federal support for companies developing battery materials, rare earths and strategic metals. The administration is seeking to address what it sees as a major vulnerability in the U.S. industrial base: heavy dependence on China and other foreign suppliers for minerals needed to manufacture weapons, electric vehicles, batteries, electronics and other advanced technologies.

Among the largest commitments is a $1.4 billion conditional loan from the U.S. Department of Defense’s Office of Strategic Capital to Sila Nanotechnologies, a company developing lithium-ion battery materials.

The Office of Strategic Capital also extended a $400 million conditional loan to Australian-listed Sunrise Energy Metals, which is developing scandium resources, and a $150 million conditional loan to magnet developer Niron Magnetics.

The U.S. Export-Import Bank will provide another $58 million in loans to Westwater Resources, Global Advanced Metals and 5E Advanced Materials.

“Critical minerals are the raw materials of American strength that power everything from advanced weaponry to automobiles, and we want these essential products to be mined, refined and made right here in the USA,” Trump said.

The commitments show how Washington is increasingly treating mineral supply chains as a strategic-security issue rather than simply a commercial or environmental concern.

The push has gained additional importance following the five-month-long war with Iran, which has placed pressure on U.S. stocks of precision-guided weapons and air-defense interceptors.

U.S. forces have used large numbers of missiles and interceptors during the conflict, while defense officials and lawmakers have warned that replenishing some inventories could take years because of existing production constraints. The Trump administration has disputed reports of significant shortages.

The Pentagon considers minerals such as rare earths, tungsten, germanium and scandium essential to the production of precision-guided missiles, fighter aircraft, armored vehicles, infrared sensors and other advanced military systems.

That creates a direct link between mineral policy and U.S. defense readiness. Washington cannot rapidly expand weapons production if the raw materials required for those systems remain dependent on supply chains that can be disrupted by geopolitical tensions.

The administration’s strategy therefore extends beyond increasing mine output. It is also seeking to establish domestic refining, processing and manufacturing capacity so that minerals extracted in the United States or obtained from allied countries can be converted into components needed by defense and industrial companies.

Interior Secretary Doug Burgum, Secretary of State Marco Rubio, Commerce Secretary Howard Lutnick and National Security Council official David Copley attended the roundtable, underscoring the cross-government nature of the initiative.

China Remains The Central Supply-Chain Concern

At the heart of the strategy is China’s dominant position across much of the global critical-minerals supply chain.

China has spent decades investing in mining, processing and refining capacity, giving it a commanding position in several minerals and materials used in advanced manufacturing. The U.S. administration argues that Washington’s dependence on those supply chains creates an economic and national-security vulnerability.

Since returning to office, Trump has launched a $12 billion strategic-minerals stockpile, backed equity investments in companies developing U.S. mines and processing facilities, and moved to restrict defense contractors’ reliance on Chinese supplies.

The latest funding package represents a further shift toward government-supported industrial policy. Rather than relying solely on private capital to establish mines and processing facilities that can take years to become profitable, Washington is using loans, grants, government procurement and strategic stockpiling to reduce the financial risks faced by producers.

The challenge is that mineral projects typically require substantial upfront capital, lengthy permitting processes and years of development before commercial production. Some projects can also face technical difficulties and volatile commodity prices.

That makes government financing potentially important in determining whether U.S. projects can reach production at a scale capable of challenging established overseas supply chains.

The inclusion of Sila Nanotechnologies also highlights the connection between critical minerals and the broader battery supply chain.

Sila develops materials used in lithium-ion batteries, linking the federal initiative to Washington’s efforts to establish domestic capacity for energy storage and advanced manufacturing.

The U.S. battery industry has expanded rapidly, but many parts of the supply chain remain dependent on imported minerals, processed materials and components. Building domestic capacity in upstream materials could therefore reduce exposure to supply disruptions while supporting manufacturers further down the value chain.

The policy also has implications beyond electric vehicles. Advanced batteries are important for military systems, drones, data centers, grid storage and other technologies requiring high energy density.

Mining Education Becomes Part of The Strategy

The administration is also attempting to address a less visible constraint on domestic mining: a shortage of skilled workers.

The Department of Energy hosted representatives from all 14 accredited U.S. mining schools on Friday and announced $100 million in grants to strengthen educational programmes.

The department has set a goal of doubling the number of mining-related graduates from U.S. universities within two years.

“We need to work on some systemic changes to how we as a nation want to offer our brightest students an opportunity to participate in this industry,” Assistant Energy Secretary Audrey Robertson said.

The Pentagon separately said it would provide $80 million for projects at three U.S. mining schools.

The emphasis on universities underpins the administration’s view that rebuilding the mineral industry requires more than opening mines. Engineers, geologists, metallurgists and other specialists will be needed to develop mines, improve extraction technologies, operate processing plants and build new domestic supply chains.

U.S. officials have cited China’s extensive network of mining universities as one factor behind its strength in global mineral production.

The roundtable brought together executives from companies developing lithium, rare earths, scandium and other strategic materials.

Tom Albanese, chairman of deep-sea mining company American Ocean Minerals, presented Trump with a gold replica of a nodule that the company hopes to extract from the Pacific seabed. Trump last year said he could bypass the United Nations-backed International Seabed Authority and issue international seabed mining licenses.

Jim Litinsky, CEO of rare earths producer MP Materials, which receives financial support from the Pentagon, presented Trump with magnets manufactured at the company’s Texas facility for General Motors.

Other participants included executives from Lithium Americas, which is developing what it describes as the largest U.S. lithium mine; NioCorp, which is developing a scandium project intended to supply defense contractor Lockheed Martin; and Energy Fuels, which received a $725 million conditional loan from the Office of Strategic Capital in June.

The presence of both mining companies and defense-linked manufacturers illustrates the administration’s attempt to connect mineral extraction directly with end users.

Washington Bets On Government-Backed Supply Chains

The broader strategy marks a significant expansion of the U.S. government’s role in the critical-minerals industry.

For years, China was able to build an advantage through sustained investment across mining, processing and manufacturing. The Trump administration is now attempting to replicate part of that model through federal financing, strategic stockpiles, defense procurement and support for domestic projects.

The immediate objective is not simply to increase the amount of minerals mined in the United States. The more consequential goal is to build complete supply chains, from extraction and refining to component manufacturing, so that critical industries are less vulnerable to geopolitical pressure.

That effort could become more important as Washington’s competition with Beijing expands from semiconductors and artificial intelligence into batteries, defense technology, electric vehicles and energy infrastructure.

Hormuz Toll Proposal Runs Into U.S. Sanctions, Insurance Barriers

By
Samuel Nwite
-
0

A proposal under discussion between Iran and Oman to introduce a system that would give Tehran a role in controlling and potentially charging ships transiting the Strait of Hormuz faces significant legal, sanctions, and insurance obstacles, according to four industry sources familiar with the matter cited by Reuters.

The proposal has emerged as one of the most contentious issues in negotiations aimed at ending the conflict in Iran, with control of the strategic waterway at the center of discussions over how commercial shipping would resume.

Before the U.S.-Israeli airstrikes at the end of February triggered the war in Iran, the Strait of Hormuz was a critical international shipping route through which roughly one-fifth of global oil supplies and other essential commodities moved. The waterway operated without transit fees and was open to commercial vessels.

Under the latest proposal, Iran would be able to intervene when necessary in relation to inbound vessels, while outbound ships would use a route between Iranian and Omani waters. Vessels leaving the Gulf would notify Iran and obtain clearance through Oman, according to a senior Iranian official cited by Reuters.

The proposed arrangement, however, could prove difficult for international shipping companies to use because of existing U.S. sanctions and insurance restrictions.

Iran has reportedly sought fees equivalent to between 5% and 7% of the value of cargoes transported through the strait, while Oman has discussed charges of about 3%. The United States, meanwhile, wants vessels to transit without paying any fees.

The proposed charges have raised concerns among international shipping organizations that the arrangement could effectively turn the waterway into a toll route.

“The ability of merchant ships to navigate international waterways ‘safely, predictably and without unnecessary impediment is fundamental to resilient supply chains, economic stability and energy security,'” the world’s leading shipping associations said in an open letter to the UN’s shipping agency.

The organizations described compulsory transit or service charges as “a toll in all but name”, warning that such a system could establish a precedent that undermines the international legal framework governing straits used for navigation.

The Strait of Hormuz operates under a two-way traffic separation scheme adopted by the International Maritime Organization in 1968 with the agreement of countries in the region. The system established designated shipping corridors through Iranian and Omani waters.

The IMO’s governing council said in July that countries bordering the strait should guarantee the “non-discriminatory and unimpeded right of transit passage of all ships” and that passage should remain free of tolls and charges.

The Challenges of Insurance and U.S. Sanctions

Beyond the question of international maritime law, the proposed fees create a more immediate problem for shipping companies: U.S. sanctions compliance.

Washington has sanctioned the Persian Gulf Strait Authority, an Iranian body established in May to operate the waterway. The U.S. Treasury has also prohibited U.S. persons from receiving services from the Iranian government associated with a “guarantee of safe passage”.

That means companies could face sanctions exposure if payments are made to Iranian authorities in exchange for transit or protection, the industry sources said.

The consequences could extend beyond the companies making the payments. Any transaction that breaches U.S. sanctions could potentially expose participants to asset freezes or other enforcement measures, making the cost of complying with the proposed system considerably higher than the fee itself.

Insurance rules add another layer of uncertainty.

In late July, the Lloyd’s Market Association introduced wording for war-risk insurance policies that would terminate coverage for a vessel if it paid a transit fee, toll or other charge to pass through the Strait of Hormuz.

“Under the clause, insurers have no liability to indemnify any such payment and, where such a payment has been made, are discharged from obligations in respect of the relevant vessel,” the LMA said.

The provision is particularly significant because vessels operating through a conflict zone generally require additional war-risk insurance to cover potential damage during transit.

That leaves shipping companies caught between competing requirements. Paying Iran or another authority could expose them to U.S. sanctions and cause them to lose insurance protection, while refusing to pay could prevent them from securing permission to transit under the proposed system.

One insurance industry source described the situation as a “catch 22”.

The dispute therefore goes beyond the question of how much ships would pay to cross Hormuz. It raises fundamental questions about who has authority to regulate commercial traffic through one of the world’s most strategically important waterways and whether any new system can operate within international maritime law, U.S. sanctions regimes and the insurance framework used by global shipping.

For oil markets, the implications are potentially significant. The Strait of Hormuz has historically carried a substantial share of global crude and petroleum-product flows, meaning prolonged restrictions, higher transit costs or uncertainty over access could increase freight, insurance and energy costs even if physical oil production resumes.

A workable agreement would therefore need to address not only Iran’s demand for a role in controlling traffic, but also the status of transit fees, sanctions exposure, insurance coverage and the internationally recognized right of passage.

Until those issues are resolved, analysts believe that a formal reopening of the waterway may not automatically translate into a return to normal commercial shipping.

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