Iran's plan to levy tolls or service fees on vessels transiting the Strait of Hormuz could lead to a surge in global inflation because such costs would make oil more expensive to transport through the waterway, experts have said.
“For a major chokepoint used for oil, gas and container traffic, even a modest charge could increase freight, insurance and compliance costs, which may eventually make goods and oil more expensive for end users,” said Ana Subasic, trade risk analyst at Kpler. “The larger concern is that such a fee could create uncertainty and encourage similar charges in other strategic waterways.”
Iran has not yet specified what fees it plans to impose on ships, but a Foreign Ministry official said last month that vessels would be required to pay for navigation, security and environmental services under a planned Iran-Oman mechanism governing the strait.
Tehran also set up an authority to regulate shipping traffic in the waterway, with a requirement for vessels to obtain permission from the authority before transiting.
The strait, between Iran and Oman, was key for the transport of more than 20 per cent of global crude oil and liquefied natural gas supplies before the war began in February. Gulf states also depend heavily on the waterway for imports of food and other goods to support their economies.
The narrow channel was closed by Iran after the conflict broke out, with only a few vessels transiting it each day, compared with more than 100 before the regional war began.
Shipping traffic surged after a preliminary agreement was announced between Iran and the US. Oil prices subsided from record highs in March as more vessels exited the strait carrying crude and other refined products to global markets.
Any imposition of tolls or fees in international waters is illegal under UN regulations and no country has the authority to levy charges, analysts said. Other global chokepoints, such as the Suez and Panama canals, collect fees from ships as they are built for navigation and are not international waters like the Strait of Hormuz. The Suez and Panama canals also cross directly through their countries' territories, justifying the imposition of fees, analysts added.
“The closest might be the Dardanelles [Strait] in Turkey, where Turkey imposes fees,” said Ryan Bohl, senior Middle East and North Africa analyst at RANE. But that waterway is entirely in Turkish territorial waters, he added. “It also has the Montreux Treaty, which governs its wartime usage.”
The Dardanelles is a narrow strait in north-western Turkey that connects the Sea of Marmara with the Aegean and the Mediterranean. Turkey charges $6.70 per net tonne for ships crossing the Dardanelles, while Suez and Panama canal collect fees based on the size of the vessel.
Are shipping firms willing to pay?
Shipping companies are expected to resist paying service fees or tolls across the Strait of Hormuz, but might pay if it becomes unavoidable. They are then likely to pass the cost on to cargo owners.
Companies might instead choose to use Saudi Arabia’s Red Sea ports or the UAE’s eastern ports of Fujairah and Khor Fakkan for loading and unloading cargo. “Some would pay, particularly if the fee is not onerous and if there is clarity that paying such a fee would not result in US sanctions or penalties,” Mr Bohl said. “Some companies might route around Hormuz permanently if the fee is more costly than routing through Saudi Arabia's Red Sea ports or around Africa.”
The UAE has opened new trade corridors with Oman as it looks to bypass the strait to carry out trade. The Emirates is also planning a major expansion of its Dibba, Fujairah and Khor Fakkan ports, all of which are on the Gulf of Oman, to boost its logistics sector and reduce its dependence on the strait to "zero", Dr Thani Al Zeyoudi, Minister of Foreign Trade, told Bloomberg this month.
Farzin Nadimi, senior fellow at the Washington Institute for Near East Policy, also said shipping companies would strongly oppose the imposition of a fee and would look into taking an alternative route if demand is not met.
“Many likely to resist, reroute via the Cape of Good Hope, or reduce volumes rather than comply – though short-term payments by some operators remain possible due to security pressures,” he said. Such a move would raise transport costs as well as prices of energy and goods, leading to broader inflationary and supply-chain effects as rerouting adds time, fuel, and emissions, he added.
Shipping risks
Although shipping traffic has increased across the strait following the US-Iran deal, vessels still face the risk of renewed hostilities while they are in transit, said Andrew Cook, of the International Federation of Shipmaster’s Association.
Kpler shows 70 ship crossings on June 24, the highest recorded daily total since March 1.
“I think everybody's going to look at this very closely over the next couple of days and see what happens,” he said. “If I was on board a ship, if I was responsible, if I worked in a shipping company and was responsible for a ship, I would be nervous that things would go downhill very quickly during your ship's transit.”
He added that ships needed to return to the internationally recognised route through the strait for safety reasons. “We’re hopeful that we can get back to normal," he said. "We support what’s happening but we’re also watching it very carefully.”
Iran's Islamic Revolutionary Guard Corps said on Thursday that only Tehran-approved routes were valid for commercial shipping through the strait, defying an Omani-backed plan to establish a safe corridor for vessels.
