Adding to transit cost uncertainty, US President Donald Trump has proposed imposing a 20% reimbursement or toll on cargoes that are transported through the Strait of Hormuz. Traditionally, vessels have enjoyed free passage through the Strait of Hormuz under international maritime law, which generally prohibits coastal states from charging ships simply for exercising their right of transit. Unlike man-made canals such as the Suez and Panama, which are sovereign infrastructure and levy substantial transit tolls, most natural international waterways – including the Strait of Hormuz, Strait of Malacca, Taiwan Strait, Strait of Gibraltar and Cape of Good Hope—generally do not charge transit fees, although some collect payments for specific services such as pilotage, tug assistance or navigational support.Also Read | Lights out: How Iran quietly moved millions of barrels through Hormuz under America’s nose However, during the recent US-Iran conflict, Iran imposed ad hoc charges on some vessels.
Trump’s 20% toll: What it means
Now, Trump, after threatening a renewed US naval blockade, has said that ships will be allowed safe passage via Hormuz for a 20% toll. According to a Bloomberg report, the levy would amount to roughly $30 million for a fully loaded supertanker carrying crude oil.The estimate is based on current crude prices of about $80 per barrel. A typical supertanker has the capacity to transport around 2 million barrels of oil.By comparison, Iran had previously been collecting ad hoc charges of as much as $2 million per voyage, according to people familiar with the matter.
Importance of Hormuz for global oil flows
On Monday, Trump announced that the US was reinstating its blockade of Iranian ships using the Strait of Hormuz and declared that the US would become the waterway’s “GUARDIAN.” He also said the US “as a matter of FAIRNESS, will be reimbursed, at the rate of 20% on all cargo shipped.” Responding in a social media post, Iranian Foreign Minister Abbas Araghchi said “absolutely right. Whoever provides secure and safe passage of commercial vessels through the Strait of Hormuz should be compensated for this service.” He added that “20% is of course too much,” before saying, “We will be fair.”The White House did not provide additional details on the proposed reimbursement, including how it would be implemented or whether the proposal had been discussed with US allies in the Gulf.Any move to introduce permanent tolls in Hormuz could have significant implications for global shipping costs and energy supply chains, given that roughly one-fifth of global oil trade passes through the strait.Also Read | Strait of Hormuz toll proposal: What are the key waterways in the world & is there a fee to transit them?
How would it work?
Before deciding whether to use the proposed service, shipping companies would first need clarity on how much it would cost, John McCown, a senior fellow at the Center for Maritime Strategy, told CNN. He noted that Trump’s social media post does not explain how the proposed charge would be determined.“Is it 20% of what our cost on the blockade is, somehow divided by the number of ships?” McCown questioned. He said other possible interpretations could include a charge equivalent to 20% of the US Navy’s escort costs or a fee amounting to 20% of the value of the cargo being transported.Regardless of the method used to calculate it, McCown believes the proposed fee is likely to be so high that few, if any, parties would be prepared to pay it.Drawing on a general industry benchmark, McCown, the former chief executive of shipping logistics company Trailer Bridge, said shippers typically pay carrier fees equivalent to about 2%-3% of the value of the goods being transported. A charge roughly 10 times that level, he said, would probably be prohibitively expensive for shippers.Ultimately, however, insurers could have the decisive influence. If they conclude that the security risks associated with transiting the Strait of Hormuz are too great, they may refuse to provide coverage for vessels using the route, irrespective of whether shipowners are willing to pay for US protection.
Surprise & skepticism in shipping industry
The proposal was met with surprise across the shipping industry, with some participants also expressing skepticism, according to the Bloomberg report.Nearly a dozen people involved in shipping markets, including operators whose tankers have navigated the Strait of Hormuz in recent weeks, said they had received no advance notice of Trump’s proposal to impose a charge on cargoes moving through the waterway. They said the lack of clarity made it impossible to assess how such a plan might influence future transit decisions. One ship captain, who requested anonymity, compared the proposed charge to highway robbery.Control of the Strait of Hormuz has become a central issue for both the US and Iran as the fragile ceasefire between the two countries has broken down. Under normal circumstances, about one-fifth of the world’s oil and gas supplies pass through the strategic waterway.
