Reparations by Another Name

On June 17, 2026, the United States (U.S.) and Iran signed a fourteen-point Memorandum of Understanding (MoU) that formally ends military operations and establishes a sixty-day framework for negotiating a final deal. Although framed as a “reconstruction and economic development plan for Iran worth at least $300 billion,” paragraph 6’s commitment engages the international law of state responsibility, irrespective of its diplomatic branding. This post evaluates three critical questions raised by this clause: whether the absence of an explicit reference to reparations alters the clause’s legal nature; whether inclusion of such a clause amounts to an implicit admission of a wrongful act by the U.S.; and whether it stands any realistic chance of being faithfully executed. More broadly, the post interrogates the legal and diplomatic value of including it in the post-conflict agreement. The $300 billion reconstruction package has since become the central friction point in negotiations. The MoU’s sixty-day window has now expired without a final agreement, yet Iran maintains that the MoU should remain the basis for any further negotiations.

The first two questions are close to settled once the applicable law is stated plainly: the label the parties attach to a commitment does not determine its legal character, and a State has never had to confess in order to pay. The third is where the difficulty lies, and it is where this short intervention concentrates. What separates 2026 from earlier episodes of economically mediated reparation is not the content of the primary law but the enforcement architecture now available to the injured State and, above all, whether Iran can operate that architecture against the U.S. without breaching what it owes to everyone else.

A Reparations Clause in Substance

The applicable framework lies in the ordinary law of State responsibility. A breach of an international obligation attributable to a State engages that State’s responsibility. Responsibility, in turn, entails a secondary obligation to make full reparation for the injury caused. This is the principle laid down in Factory at Chorzów and codified in Articles 1, 2 and 31 of the 2001 International Law Commission (ILC) Draft Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA).

The question is therefore a narrow one. Can paragraph 6 of the MoU be characterized, in substance, as a reparations clause? The positivist objection would hold that a State cannot be bound by what it has refused to agree to. If the U.S. chose to include a reconstruction clause, so the argument goes, it thereby refused to agree to a reparations clause, which would otherwise have been named explicitly. But this objection misses the point. The reparations obligation arises ex lege from the commission of the wrongful act, not from the agreement itself. The parties’ choice of label cannot alter the legal nature of an obligation whose source lies outside the treaty.

More fundamentally, the treaty itself is not the source of the reparations obligation. Customary international law establishes that the duty to repair arises automatically from the commission of an internationally wrongful act, independently of any conventional instrument. The Chorzów decision established this principle, Article 31 ARSIWA codified it, and state practice in post-conflict settlements consistently confirms it. A post-conflict agreement may specify the modalities of reparation, but it does not create or extinguish the underlying obligation. Thus, even if the reconstruction program is not considered a reparation clause and the agreement contains no explicit reparations provision, that absence cannot in itself amount to a renunciation of the right to reparation. To conclude otherwise would deprive explicit renunciation clauses of their raison d’être (p. 758). The absence of any such renunciation, combined with the inclusion of a reconstruction clause, therefore strongly suggests that the U.S. implicitly accepts the legal consequences of its actions, regardless of the label the agreement attaches to the arrangement. Yet, this does not mean the U.S. admits fault or that the clause is, in Versailles-era terminology, a “guilt clause,” as explained below.

Paying Without Admitting: The Vietnam Precedent

The question is whether the U.S. is willing to accept that characterization and whether it matters. It has every incentive not to. A direct reparations clause would implicitly confirm the commission of a wrongful act, precisely the admission the U.S. seeks to avoid. But the incentive to avoid the word tells us nothing about the content of the obligation, and the historical record shows that the two have long been deliberately held apart.

In the case of Vietnam, a debate surrounded the interpretation of article 21 of the 1973 Paris Peace Accords defining the modalities of reparations. The U.S., through Nixon, first formulated a “reconstruction program” proposal. The U.S. then repeatedly voiced, through Kissinger, that any payments made will not be done in the name of reparations. This was essentially designed to avoid any admission of responsibility. Vietnam, by contrast, consistently argued that article 21 reflected a war reparations clause. Article 21 illustrates a classic diplomatic compromise in which the wrongdoer declines to admit fault but pays anyway, with the payment dressed as voluntary aid.

The same dynamic now plays out. Paragraph 6 of the signed MoU describes a plan “facilitated” developed “in coordination with regional partners” rather than directly financed by the U.S., preserving the same ambiguity the U.S. cultivated in Vietnam. Reparations could be channeled through a multilateral mechanism or paid directly.

Like its Vietnam-era predecessor, paragraph 6 avoids the word “reparations” entirely while the Iranian version uses the verb “undertakes” rather than the U.S. version’s “will develop,” embedding an interpretive contest into the text from the outset rather than allowing it to develop post-signature, as happened with Article 21 of the Paris Peace Accords.

What distinguishes 2026 from 1973 is the position of the injured State. Vietnam could have pressed the argument that article 21 created a secondary obligation whose breach engaged the ordinary consequences of State responsibility. It did not, and it had little practical means of doing so. Iran’s situation differs in two respects that matter. First, the United States has signed a reconstruction clause rather than merely proposed one, so non-performance is a breach of something identifiable. Second, Iran holds in the Strait of Hormuz. Aleverage it can dress in the vocabulary of a fully articulated countermeasures regime.

Enforcement and the Limits of Iran’s Leverage

Failure to pay reparations is itself an internationally wrongful act, either as a constituent element of the primary wrongful act or as a violation of the secondary reparations obligation arising from it. Iran’s principal leverage would center on the Strait of Hormuz. A full naval blockade would be foreclosed at the threshold: under Art. 50(1)(a) ARSIWA, countermeasures may not involve a threat or use of force as prohibited by the United Nations Charter, and a naval blockade plainly falls within that prohibition.

But the analysis does not end there. Iran could, as the bordering State, impose regulatory restrictions on transit, such as tariffs, passage fees, or restricted navigation conditions, that fall short of force. Such measures would violate the transit passage regime under The United Nations Convention on the Law of the Sea (UNCLOS) Part III (Arts. 38, 42, and 44), but that is not dispositive. Countermeasures by definition involve otherwise unlawful conduct (Art. 22 ARSIWA), and the question is whether transit passage obligations fall within one of the protected categories under Art. 50. They do not obviously do so. The legality of such measures would therefore turn on proportionality (Art. 51) and reversibility (Art. 49(3)), a far more open doctrinal question than the blanket prohibition on force suggests.

The harder constraint, however, is not Article 50 but Article 49. Countermeasures are bilateral instruments by design. Article 49(1) permits an injured State to take them “only … against a State which is responsible for an internationally wrongful act in order to induce that State to comply with its obligations,” and Article 49(2) confines them to the non-performance “for the time being of international obligations of the State taking the measures towards the responsible State.” Two conditions therefore operate at once. The measure must be aimed at the wrongdoer, and it must consist in withholding performance of something owed to the wrongdoer. Restrictions on transit through the Strait of Hormuz satisfy neither comfortably.

The transit passage regime is not, in any meaningful sense, an obligation Iran owes the United States. It is owed to all States whose ships and aircraft use the strait, and its beneficiaries are overwhelmingly not American. A passage fee, a tariff, or a restrictive navigation condition imposed at the strait would therefore suspend performance of obligations owed to dozens of States that have committed no wrongful act, in order to apply pressure to one that has. Measured against Article 49(2), that is not a countermeasure against the United States but rather a non-performance of obligations owed to third parties.

The ILC anticipated part of the problem. Its commentary to Article 49 accepts that countermeasures will frequently produce incidental effects on third parties  and it does not treat such effects as fatal, provided the measure does not itself breach an obligation owed to the third State and that State holds no individual right arising from the obligation suspended. That distinction is the one on which any Iranian argument would have to rest: incidental economic harm to third States is tolerated, whereas the breach of obligations owed to them is not. Iran could argue that the transit passage regime is not one obligation owed to the world but a bundle of parallel obligations, one running to each State whose vessels use the strait. Iran withholds the strand owed to the United States under Article 49(2), and the burden falling on third parties is the collateral effect the commentary expressly tolerates. On that account the Commission has already blessed the scenario, using this very example to do it.

Iran’s argument is likely to be defeated by another reading of the architectural structure of the obligations at stake. It is precisely the nature of obligations that determines whether the impact is incidental or material under paragraph 5 of the commentary to article 49 ARSIWA. The transit passage regime is built in a way that defeats the bundle-of-bilaterals reading. Article 44 UNCLOS provides that there shall be no suspension of transit passage, unqualified as to whose passage. Article 42(2) forbids the bordering State from adopting laws that discriminate in form or in fact among foreign ships, and the right attaches to the status of the waterway, not to any relationship between Iran and a particular user. An obligation with those features is integral rather than reciprocal – indivisible in performance, in the sense familiar from Article 60(2)(c) of the Vienna Convention and Article 42(b)(ii) of ARSIWA. There is no American strand to withhold, because the obligation was never spun into strands. Iran cannot suspend it as to Washington without suspending it as to everyone, which means every flag State using the strait holds precisely the individual right the commentary’s carve-out requires them to lack.

What follows is not that the measure is void. Paragraph (4) of the same commentary states that where a countermeasure breaches an obligation owed to a third State, wrongfulness is not precluded as against that State, and the preclusion of wrongfulness is in that sense relative, concerning only the legal relations between injured and responsible State. Applied to Hormuz this yields a bifurcation rather than a prohibition. As against the United States, Iran may well be exercising a valid countermeasure. As against impacted third parties, it is committing wrongful acts, each carrying its own obligations of cessation and reparation. Article 49 does not forbid Iran from restricting the strait. It prices the restriction, and the price is simultaneous responsibility to most of the maritime world.

Iran could try to escape the bifurcation by narrowing the measure. Fees or conditions applied only to vessels flying the U.S. flag, or only to cargo owned by or destined for the United States, would come closer to a countermeasure properly directed at the responsible State. The narrowing defeats itself in both directions. Legally, it is doubtful that transit passage can be disaggregated in this way at all. Article 42(2) UNCLOS forbids a State bordering a strait from adopting laws and regulations that “discriminate in form or in fact among foreign ships,” so a flag-selective restriction breaches the regime on a ground wholly independent of the countermeasures question. Practically, the U.S.-flagged merchant fleet is negligible, beneficial ownership is routinely obscured behind flags of convenience and single-ship companies, and hydrocarbons are fungible, so restrictions aimed at American-bound cargo would redirect flows rather than impose costs. Iran’s leverage at Hormuz exists precisely because a restriction there is indiscriminate. The feature that makes the threat credible is the same feature that makes it unlawful.

The parties’ treaty positions sharpen the difficulty further. Neither State is a party to UNCLOS.  The United States has never ratified it, and Iran signed in 1982 without ratifying. Furthermore, Iran has consistently maintained that transit passage is a treaty-created right from which non-parties may not benefit. That position has always been Iran’s strongest card at the strait. In the countermeasures setting it is a trap. Article 49(2) allows the injured State to suspend obligations owed to the responsible State; if Iran owes the United States no transit passage obligation to begin with, then there is nothing owed to the United States for a countermeasure to suspend, and what a Hormuz restriction would actually suspend is the customary right of transit enjoyed by everyone else. Iran cannot both deny that the obligation runs to Washington and rely on the countermeasures framework to justify suspending it. Either the obligation is owed to the United States, in which case Article 49(2) is satisfied as to whatever component of the measure touches U.S. shipping, or it is not, in which case the measure operates entirely against third States and Article 49(1) forecloses it.

This inverts a question that has dominated much of the recent literature. The contested issue there is whether States other than the injured State may take countermeasures  to protect collective or erga omnes interests, a question the ILC deliberately left open in the saving clause of Article 54 after failing to find settled practice. The scenario here runs the other way. It is not a third State acting to vindicate a community interest, but an injured State whose only effective instrument necessarily damages the community interest in free transit through an international strait. Whatever one concludes about third-party countermeasures, that debate offers Iran nothing, and on balance it cuts against Iran: the flag States burdened by a Hormuz restriction would themselves be injured States, entitled to invoke Iran’s responsibility, to demand cessation and reparation, and to take countermeasures of their own and, unlike Iran, to do so against a State whose conduct is the direct and intended cause of their injury. Iran would find itself simultaneously an injured State as against Washington and a responsible State as against much of the rest of the world. Article 52 adds a procedural cost on top: Iran would first have to call on the United States to perform, notify its decision, and offer to negotiate, converting a latent threat into a declared legal position and inviting the United States to litigate the underlying breach.

The signed MoU adds a further complication that deserves attention. Paragraph 5 commits Iran to “best efforts” to ensure free commercial passage through the Strait of Hormuz for sixty days, with no fees charged, and demining to be completed within thirty days. Iran thereby undertook a primary obligation with respect to Hormuz passage as a condition of the MoU itself. This does not eliminate the countermeasures analysis, but it raises the threshold for its invocation. Any subsequent resort by Iran to regulatory restrictions on Hormuz transit in response to U.S. non-performance of paragraph 6 would need to navigate the tension between the countermeasures framework under Arts. 22 and 49–51 ARSIWA and the specific commitment Iran has assumed under paragraph 5. The proportionality requirement under Art. 51 would be particularly demanding: countermeasures must be commensurate with the injury suffered, and a State invoking countermeasures cannot invoke them in a manner that effectively nullifies a primary obligation it has simultaneously undertaken. The doctrinal space remains open: paragraph 5 is explicitly time-limited and does not purport to be a permanent waiver of regulatory authority, but the textual architecture of the MoU makes the legal argument harder to construct than the pre-signature version of this analysis suggested.

This is precisely why the U.S. interest lies not in avoiding reparation altogether, but in ensuring that legal compliance remains Iran’s most attractive available option. Leaving the reparations commitment unperformed does not merely create a political risk; it opens a doctrinal space in which Iran can construct a plausible, if untested, legal justification for economic pressure on the Strait.

Conclusion

The three questions examined here converge on a single point: the label the U.S. attaches to its commitment matters far less than whether it commits at all. If the reconstruction clause is included, it will attract the legal consequences of reparation regardless of its name, because the obligation exists independently of the agreement. If the U.S. then fails to follow through, Iran will have legal leverage, even if the legality of Hormuz transit regulations as a countermeasure has not yet been tested. And if the U.S. does perform, it will have effectively accepted the substance of a reparations obligation without ever admitting the wrongful act that generated it.

That is, in the end, the diplomatic logic of economically mediated reparation: it allows both parties to claim what they need domestically – the U.S., that it made no admission of wrongdoing; Iran, that it extracted meaningful concessions – while the law quietly does what it was always going to do. The risk is that this ambiguity, useful at the signing stage, becomes a liability at the execution stage. Political will is not a legal instrument, and no amount of careful drafting can substitute for it.