The End of International Law and Its Global Economic Fallout

U.S. President Donald Trump made unprecedented remarks declaring the Strait of Hormuz—a crucial choke point for global maritime logistics and the lifeline of worldwide crude oil transportation—as “U.S. Territory.” Far beyond mere political rhetoric, this represents an extreme manifestation of “America First” unilateralism that completely denies the United Nations Convention on the Law of the Sea (UNCLOS) established in 1982 and the principle of Freedom of Navigation.

This statement is a destructive concept that undermines the very foundation of the “Rules-Based International Order” led by the United States since World War II. Going beyond a simple aggressive foreign policy stance, it could become an unprecedented event that fundamentally reshapes the global maritime logistics system and geopolitical landscape.

Behind this radical strategy lie the limitations of conventional U.S. military operations. It serves as an advanced geoeconomic strategy aimed at directly controlling global energy transport routes and economically isolating Iran and Houthi rebels completely. Simultaneously, it seeks to overcome the depletion of air defense missile inventories (such as SM-2 and SM-6) and the rising operational fatigue of aircraft carrier strike groups exposed during conflicts in the Middle East and responses to Yemen’s Houthi rebels.

1. Collapse of the UN Law of the Sea and Loss of Multilateral Norms

[The Fallout Domino Effect of the Hormuz Territory Declaration]

Denial of Transit Rights in International Waters ➔ Nullification of UNCLOS ➔ Domino Effect of Maritime Territorialization by Major Powers ➔ Fixation of Defense Spending Black Hole & Reduction in Multilateral Climate/Energy Cooperation

• Total Denial of UNCLOS and “Right of Transit Passage”: Although the Strait of Hormuz borders the territorial waters of Iran and Oman, it is a key international waterway where Innocent Passage and Transit Passage are guaranteed under international law. If the U.S. declares territorial sovereignty under the pretext of effective military control, the legal and moral grounds to deter China’s “Nine-Dash Line” claims in the South China Sea or Russia’s monopoly over the Northern Sea Route (NSR) will completely evaporate, leading to the collapse of the international rule of law.
• Redirection of Climate and Clean Energy Cooperation Budgets into Defense Spending: National budgets worldwide will be sucked into defense spending like a black hole to maintain strait blockades and military management. Consequently, budgets for global climate crisis responses (IPCC, GCF) and clean energy R&D will be drastically cut, incurring immense opportunity costs through the loss of capacity to address environmental disasters.

2. Top 3 Future Economic and Geopolitical Scenarios

Scenario	Key Situation & Operating Mechanism	Global Economic & Financial Market Impact
Scenario 1: Complete Economic Isolation (Base Case)	The U.S. leverages control over the strait to levy “Safety Management Fees and Environmental Funds (tolls)” on all passing tankers while completely banning Iran-related vessels.	Transit delays and toll burdens cause shipping rates and insurance premiums to surge. Global crude oil prices become permanently anchored at $90–$100 per barrel.
Scenario 2: Asymmetric Counterattack by Iran (Severe Case)	Iran and Houthi rebels attack the strait using drones, stealth sea mines, and anti-ship missiles, directly targeting tankers during rotation gaps in U.S. carrier power.	Daily transport of 20 million barrels of crude oil is completely paralyzed. Oil prices surge above $150 per barrel, triggering global stagflation.
Scenario 3: BRICS-Led Structural Realignment (Structural Change Case)	The BRICS block (led by China, Russia, and Iran) criticizes the nullification of UNCLOS and accelerates overland pipelines and Northern Sea Route developments to bypass U.S. control.	The share of Yuan and local currency settlements in crude oil trades rises sharply, accelerating the deconstruction of the U.S. dollar’s energy payment hegemony (Petrodollar).

3. Comprehensive Evaluation & Strategic Takeaways for Businesses/Investors

Domain	Legacy Global Order (AS-IS)	Order Post-Territory Declaration (TO-BE)
Maritime Logistics Norms	Guaranteed Innocent/Transit Passage based on UNCLOS	Direct control by the hegemon; imposition of tolls/safety funds
Energy Transport Risk	Low risk during peacetime; U.S. Navy guarantees security during emergencies	Permanent geopolitical armed conflicts; surging insurance premiums
Global Currency System	Maintenance of Dollar-centric Petrodollar system	Diversification into local currencies and BRICS-based currencies
Asset Allocation Strategy	Traditional 60/40 Portfolio (Stocks/Bonds)	Constant inclusion of commodity risk premiums (Commodities, Gold, Oil)

The U.S. administration’s declaration of the Strait of Hormuz as U.S. territory is more than mere rhetoric; it signals the end of the rules-based global multilateral order maintained since World War II. While it may appeal to nationalist voters in the short term, over the long term, it represents a self-inflicted surrender of the status and legitimacy the U.S. has built over decades as a global public goods provider. Prioritizing conventional arms deployment and military budget expansion to maintain hegemony pushes common human imperatives—such as infrastructure maintenance, clean energy transition, and climate crisis mitigation—to the back burner.

Global enterprises and investors must face the reality that the era of maritime logistics based on international legal stability has come to an end. Going forward, supply chain planning for energy and raw materials must permanently reflect geopolitical risk premiums, and strategies should immediately focus on supply chain diversification and real-asset-centered portfolio restructuring.