Trump’s 20% Strait of Hormuz Tariff Explained: How It Works and Why Oil Prices May Rise | Today’s news
President Donald Trump said Monday that the U.S. would once again begin blocking Iranian ships passing through the Strait of Hormuz and proposed a 20 percent fee on all additional cargo transported through the waterway.
Trump’s announcement that “the US will act as the GUARDIAN of the strait” further escalated tensions with Iran and deepened the crisis over control and access to one of the world’s most critical sea lanes.
“The United States will henceforth be known as the ‘GUARDIANS OF THE STRAIT OF HORMUZ,’ but as such and in JUSTICE, they will be reimbursed 20% of all cargo shipped for all costs necessary to ensure the safety and security of this very unstable part of the social world,” Trump said in a Truth Social post on Monday.
Quick answers to key questions
•5 QUESTIONS
Trump proposed that the US act as the “guardian of the Strait of Hormuz” and levy a 20% fee on all cargo transported through the waterway to ensure maritime security.
The proposed 20% fee could significantly increase shipping costs and potentially increase fuel prices globally, at around $32 million at current prices for a fully loaded oil tanker.
Many shipping industry experts have expressed skepticism due to the lack of implementation details and high fees that could make cargo transportation unaffordable.
Trump’s proposal may be legal under international law if the fee remains optional for shipping companies, allowing them to decide whether to pay for protection.
Iran rejected the proposal as excessive and asserted its claim to the strait, with officials calling Trump’s demands an illegal attempt to undermine Iranian sovereignty.
Trump also said the “process and formation” of his plan “will begin immediately.”
But the White House did not provide further details about Trump’s proposal, including how it will be administered or whether it has been communicated to America’s Gulf allies.
Here are the key questions surrounding Trump’s proposal.
It’s unclear how the fees will work
Noting that it’s still unclear how the fee would be calculated, John McCown, a senior fellow at the Center for Maritime Strategy, told CNN: “Is it 20% of our blockade costs, divided by the number of ships, somehow?”
Read also | US oil tops $75 after Trump renews Strait of Hormuz blockade on Iranian ships
“Other options include 20% of the cost the US Navy incurs to escort the cargo, or a 20% fee on the value of the goods being transported.”
But one thing is certain – the fees would be high enough “that no party would want to pay them”
Shippers typically pay carriers 2%-3% of the value of their goods in fees, but a fee nearly 10 times that would make the system unaffordable.
Oil prices will jump further
The development threatens to increase fuel costs. A 20% fee would be about $32 million for a fully loaded very large oil carrier at current oil prices. That’s far higher than the toll levied by Iran, which people familiar with the situation previously described as reaching $2 million.
In fact, oil prices extended gains to session highs on Trump’s comments, while stocks and bonds fell.
Brent crude rose 4.1% to $86.73 a barrel after jumping nearly 10% on Monday. U.S. benchmark crude rose 3.1% to $80.55 a barrel.
Oil prices are still below their wartime high of nearly $120 a barrel, but uncertainty over future supply stability has deepened as the US and Iran each claim control of the Strait of Hormuz.
But is it even legal?
The Strait of Hormuz is an international waterway and under international law all vessels have the right of free passage. Iran has previously imposed a service charge on vessels, technically a toll, which was definitely not legal. However, these fees do not currently apply.
But what Trump proposed would be legal under international law as long as the payment remains optional, James Kraska, a professor of international maritime law at the US Naval War College, told CNN after reading his paper.
Now shipping companies can decide whether to pay for protection, and those who don’t can continue to use the route.
Read also | US-Iran War News LIVE: India to enforce rules-based maritime order, says MEA
The Strait of Hormuz is a critical conduit for energy and other commodities, having provided passage for about a fifth of the world’s oil flows before the US and Israel launched strikes on Iran in late February. Iran’s efforts to close the waterway during the war raised energy prices around the world and created a political blow for Trump.
An interim peace deal between the two countries provided for free trade during a 60-day negotiating window, and Trump celebrated the pact by touting the potential impact on gasoline prices and the economy, a confirmation of how eager he is to put the conflict behind him.
