Another TACO moment? US President Donald Trump’s plan to extract a 20% fee from cargo passing through the Strait of Hormuz lasted barely 24 hours. According to a CNN report, the proposal, replacing the so-called “US reimbursement fee” with trade and investment deals that Gulf states would make with the United States.
On Monday, taking to Truth Social, Trump dubbed the United States ‘the guardian of Hormuz Strait’ and further added that as a matter of fairness, it will be reimbursed at the rate of 20 per cent on all cargo shipped.
The latest reversal may bring the ‘TACO’ debate back into focus, a market shorthand coined to refer to instances where Trump has softened or reversed previously announced positions. TACO stands for ‘Trump Always Chickens Out’.
Quick answers to key questions
What was Trump’s proposed fee for cargo transiting the Strait of Hormuz?⌵
Trump proposed a 20% fee on all cargo transiting the Strait of Hormuz, which he later withdrew within 24 hours.
Why did Trump withdraw the 20% toll proposal for the Strait of Hormuz?⌵
Trump withdrew the proposal to replace it with trade and investment deals between Gulf states and the United States.
How does the fee proposed by Trump compare to typical shipping fees?⌵
The proposed 20% fee is significantly higher than typical shipping fees, which usually range from 2% to 3% of the cargo’s value.
Should shipping companies be concerned about fees for transiting the Strait of Hormuz?⌵
Yes, shipping companies expressed concerns that such high fees would make routes through the Strait of Hormuz too expensive and discourage their use.
What implications does Trump’s proposal have on international maritime law?⌵
The proposal raised concerns regarding the legality of charging fees within international waters, as established maritime law typically prohibits such actions.
However, the battle to extract economic gains from the Strait of Hormuz is far from over. Amid an intensifying tussle between the US and Iran over the key global energy route, here’s a look at how the world’s other key waterways charge ships for transit — and why.
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Strait of Malacca
It is a critical sea route for Asian energy and trade. The waterway links the Indian Ocean with the South China Sea and the wider Pacific, and provides the shortest sea route between the Middle East and East Asia. Reportedly, ships do not pay a transit toll. However, Indonesia, Malaysia, and Singapore receive voluntary contributions to a fund that maintains navigational aids such as buoys, beacons, and lighthouses.
Bab el-Mandeb Strait
Also known as the gateway to Suez, the waterway is a stretch of water at the entrance to the Red Sea, linking the Indian Ocean with the Suez Canal. There are currently no fees for transiting the Bab el-Mandeb Strait. Reportedly, in April, the Houthis were considering plans to impose tolls on ships passing through the waterway, after Iran set the precedent by doing so in the Strait of Hormuz.
Suez Canal
The 193-km man-made canal through Egypt linking the Mediterranean and Red seas is the shortest sea route between Europe and Asia. Reportedly, it carries about 15% of global maritime trade. The sea route is operated by Egypt’s state-owned Suez Canal Authority, which oversees navigation and sets transit rules. As per Bloomberg, one-way passage for a laden tanker of the most common type can cost around $380,000.
Panama Canal
Like the Suez Canal, the Panama Canal is an 80-km man-made waterway connecting the Atlantic and Pacific oceans. It is dubbed as the fastest sea route between Asia and the US East Coast and carries about 6% of global maritime trade. The canal is sovereign infrastructure owned and operated by Panama. The tolls are based on vessel type, capacity and cargo. Bloomberg notes that a medium-sized oil tanker typically pays $350,000–$400,000 to reserve a canal passage, but auctioned slots can cost around $1 million during droughts or geopolitical disruptions.
Turkish Straits
The straits of Bosphorus and Dardanelles run through Turkey, connecting the Black Sea with the Mediterranean. It is a vital shipping corridor for oil, gas, grains and container cargo from Russia, Ukraine and other Black Sea states. Governed by the Montreux Convention, it charges a service fee for ships transiting the Turkish Straits rather than a transit toll. According to Bloomberg, a typical Suezmax oil tanker would pay around $240,000 in fees for a return trip through both straits, as of 1 July.
Danish Straits
The Danish Straits are a series of channels that connect the Baltic Sea to the North Sea. The Oresund Strait, a key channel, separates Denmark and Sweden and is a gateway from the Baltic Sea to the Atlantic Ocean. It serves major ports in Sweden, Finland, the Baltic states, Poland and Germany. There are no fees for transiting the strait. However, the International Maritime Organization recommends pilotage services.
Cape of Good Hope
The Cape of Good Hope, located at Africa’s southern tip, is not a maritime chokepoint but serves as a crucial alternative shipping route between Asia and Europe. The open-sea passage around South Africa also forms an important link in trade routes connecting the Americas with Asia. Since it is a natural, open international waterway, there is no transit fee.
With inputs from Bloomberg and US Energy Information Administration
