Trump's Plan to Impose Toll on Hormuz Strait May Collapse Global Economy

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US President Donald Trump has announced plans to claim control of the Hormuz Strait and charge a 20% toll on ships transiting through it, despite Iran insisting on retaining control of the waterway. The US toll would be significantly higher than the $US2 million per vessel fee that Iran currently charges, equating to a toll of about 1.2 per cent on the value of the oil it carries at today's prices.

Iran has charged as much as $US2 million to the larger tankers traversing the strait, although it has taken to calling the charges for ensuring safe passage through the strait service fees, rather than tolls.

Trump posted on his Truth Social on Monday that “the Hormuz Strait is OPEN and will remain OPEN” despite the Iranians firing on two ships within the strait on Monday and with traffic through the strait dwindling to negligible levels after hostilities flared again last week, as Trump declared the ceasefire “over.”

The owners of those cargoes and shipowners might not be overjoyed to pay those fees, but compared to the cost of insurance, which has soared to around 5 per cent of the total value of the vessel and its cargo since the war began, it is relatively cheap protection against Iranian strikes.

Trump’s proposed 20 per cent toll is of a different order of magnitude. For a VLCC, it would cost $US33 million per cargo at today’s oil price. For a ULCC: between $US50 million and $US66 million.

Unless that cost can be passed on to customers – at its pre-war peak the strait carried about 20 per cent of the world’s oil and oil products – it would render the strait unviable as a route to market. If it could be passed on, global oil prices would rise to reflate the oil industry, with severe consequences for the global economy.

If the US were able to impose the protection racket he has outlined, it would have a significantly negative impact on oil prices and the global economy (and consequently US gasoline, diesel and fertiliser prices and the US inflation rate).

Iran insists that it will retain control of the strait, while Trump now claims it for the US – even though both nations, as the UN pointed out this week, would be in breach of international law if they imposed the tolls that both envisage as the price of safe passage or, as Trump sees it, as recoupment of the costs of providing that protection.

Control of the strait, rather than the fate of Iran’s nuclear stockpile, has developed into the central issue in the conflict, with Iran having charged as much as $US2 million to the larger tankers traversing the strait, although it has taken to calling the charges for ensuring safe passage through the strait service fees, rather than tolls.

The $US2 million per vessel fee that Iran charges would, for the VLCCs, equate to a toll of about 1.2 per cent on the value of the oil it carries at today’s prices. (The oil price spiked 9.6 per cent to $US83.30 a barrel on Monday as the conflict resumed).

For a ULCC, it would be a charge of between 0.6 per cent and 0.8 per cent of the value of the oil it is carrying.

The US administration had thought that the display of America’s military might, and the decapitation of Iran’s former leadership at the outset of the war, would force Iran to surrender and possibly lead to regime change.

However, the war gave Iran an understanding of how powerful its ability to threaten traffic via the strait could be, and of the protection that control of the strait could provide against future attacks by the US and Israel.