Why the US probably won't go out of its way to free the cargo ship Iran seized

The Marshall Islands is a country of around 60,000 citizens sprawled across a string of volcanic atolls 3,000 miles east of the Philippines and about 4,600 miles southwest of the southern California coast.

On April 28th, the country became embroiled in a major geopolitical drama.

Tigris, a Marshall Islands-flagged commercial shipping vessel belonging to the Denmark-based shipping company Mearsk, was boarded by the Iranian Revolutionary Guards Corps navy in international waters in the Strait of Hormuz.

Iranian media said the ship was seized for legal reasons. The Pentagon described Iran’s actions — which including shooting warning shots at the vessel — as “provocative.”

In any case, it’s unlikely that the US risk too much to free the ship from Iranian control.

What it means to fly the Marshall Islands flag

The Marshall Islands were under US control until they gained independence in 1983, and a Compact of Free Association between the countries means that the US still has “full authority and responsibility for security and defence” of the island chain, according to a US State Department fact sheet.

As Bloomberg is reporting, the country’s ambassador in Washington believes that its defence arrangement with the US means that the Marshall Islands can’t recover the vessel on its own, and must depend on the US to resolve the situation.

But the Marshall Islands’ government will probably be disappointed. Like thousands of other vessels around the world, the Mearsk Tigris flies the flag of the Marshall Islands without having much of a connection to the place.

On paper, the Marshall Islands is a maritime trading superpower, backed with an American security guarantee.

But in reality, Marshall Islands registration is one of the commercial shipping world’s most popular and transparent regulatory dodges. And it’s unlikely the US would put American lives or credibility on the line to uphold — or even strengthen — a Danish company’s ability to exploit a foreign government’s legal loophole.

Screenshot 2015 04 28 16.32.32Google MapsThe location of the Marshall Islands

Collectively, Marshall Islands-flagged ships are a commercial juggernaut.

According to the UN’s 2014 Review of Maritime Transport
, 2,207 Marshall Islands-flagged vessels were responsible for 9.1% of the world’s dead-weight tonnage in 2014, giving the islands the fourth-largest merchant fleet on earth, and third-largest in tonnage.

Over 99% of Marshall Islands-flagged vessels were foreign-owned. And there’s a reason why foreign shipping companies register their vessels in the Marshalls — and in Liberia and Panama, the only two countries whose fleets exceed the Marshalls in annual tonnage.

The Marshall Islands has a ship registration service with offices in Virginia, New York, and over 20 cities around the world, according to the company initiated by the Marshall Islands’ government to facilitate international maritime registration.

The Marshall Islands does not tax revenues from foreign-owned ships that are registered in the country and has “balanced rules and regulations” regarding mortgaging a commercial ship, according to a fact sheet from the consulting firm Norton Rose Fulbright.

The fact sheet notes that it “typically takes around a day to file and process” a commercial registration for the Marshall Islands.

The Marshall Islands offers a few other advantages. It’s possible to pay vessel registration fees online.

The country’s various registration offices are subject to US, British, and EU regulatory controls, while the country’s ship registration laws are based off of the favourable corporate chartering laws in Delaware, giving companies and their lawyers some potential familiarity with the registration rules.

BoatsGiff Johnson/AFP/FileBoats in the Marshall Islands.

Indeed, the Marshall Islands could be thought of as a kind of trans-national Delaware for the shipping industry: a geographically small or peripheral place that punches above its weight thanks to a carefully calibrated regulatory climate.

The country owns an outsized share of the US market: According to the US Department of Transportation, 31% of US-owned vessels were registered in the Marshall Islands as of September of 2011, putting it far ahead of 2nd-place Singapore, which had 11%.

It’s an arrangement that gives a country of only 60,000 citizens global commercial reach and substantial per-capita revenues in registration fees.

But it also means that the US might not be willing to spark an international crisis to uphold a global tax dodge, even if it’s one that assists US companies.

However, that doesn’t mean the US is nowhere to be found: Soon after the container ship issued a distress call, the USS Farragut travelled west toward its last known location as the situation developed.

Wikimedia CommonsThe USS Farragut

NOW WATCH: Here’s how much sex happy couples have every month

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.