Trump threatened new tolls in the Strait of Hormuz. What if other countries follow suit?

U.S. President Donald Trump threatened to impose new tolls in the Strait of Hormuz last weekend, sparking worries that the practice of charging to pass through critical waterways could spread — with devastating consequences to the global economy. 

Iran has blocked the strait for much of the war that began this February when the U.S. and Israel first attacked. Iran is only granting passage to certain ships after reportedly charging tolls as high as $2 million US. Iran’s ability to leverage the strait has hurt the U.S. and its allies in part because one fifth of the world’s oil passes through it and the closure has caused steep hikes in gas prices. 

Last weekend, Trump threatened to impose American tolls on the waterway if a peace deal isn’t reached in 60 days, saying the money would be for “services rendered as the Guardian Angel to the countries of the Middle East.” 

Trump had floated the idea in April that the U.S., Iran and Oman could jointly collect fees for passage, and then reversed course on that plan in May. 

“Once you start down that road, there’s no telling where it leads,” said Joshua Kurlantzick, senior fellow for Southeast Asia and South Asia at the Council on Foreign Relations. 

He says tolls pose a “huge threat” to the idea of international waterways and freedom of shipping. 

“If you have a global hegemon demonstrating this behaviour, then other countries are going to be like, ‘Well, we can do it, too,’ ” he said. 

Kurlantzick says widespread adoption of this practice would be a “complete disaster for the entire global economy.” 

Several chokepoints at risk: expert

The idea is already percolating elsewhere.

Indonesian Finance Minister Purbaya Yudhi Sadewa, speaking at a symposium in April, suggested placing tolls on ships transiting the Strait of Malacca. “If we split it three ways — Indonesia, Malaysia, and Singapore — it could be quite substantial,” he said. Sadewa later walked back his comments.

Kurlantzick says a toll system in the Strait of Malacca, which he calls the “most important chokepoint for the most heavily trafficked shipping lane in the world,” would be significantly more damaging than the Strait of Hormuz.

And unlike Hormuz, he says there are no alternative routes. 

He says there are several other chokepoints of potential concern.

Southwest of Hormuz, he mentions the Bab al-Mandeb Strait between Yemen and the Horn of Africa. Iran threatened to close Bab al-Mandeb in April using its “axis of resistance” alliance that includes the Houthis in Yemen. 

Kurlantzick says Russia could potentially control several arctic chokepoints including the Bear Gap, located between mainland Norway and Bear Island, west of Russia’s Kola Peninsula. 

Norwegian Defence Minister Tore Sandvik warned in a May interview with The Times that Moscow is threatening the chokepoint and must not be allowed to gain control. 

‘Opening up a Pandora’s box’

There was a time when charging to pass through waterways was common.

In the 16th and 17th centuries, Denmark charged tolls for passage through the Sound, a waterway between modern-day Denmark and Sweden. Those tolls were a pillar of Denmark’s economy. 

Kurlantzick says the idea of free global navigation began to take hold in the late 19th Century with the rise of industrial shipping, and was formalized in 1982 by the United Nations Convention on the Law of the Sea.  

Oman ratified the convention, while Iran signed it but never formally ratified it. The U.S. didn’t sign it, but Kurlantzick says they’ve generally abided by it.

Ian Ralby, who runs a security consultancy firm and is also a non-resident senior fellow at the Center for Maritime Security, says Iran and the U.S. toying with tolls sets an “incredibly dangerous precedent” because 90 per cent of world trade happens by sea.

“That means everything — our food, our medicine, our supplies, our clothes, our technology — is moving on boats,” Ralby said.

Should those trips start to cost more, prices for goods that are shipped will increase.

If Iran and the U.S. are allowed to go ahead with tolls on the Strait of Hormuz, Ralby suggests there’s nothing to stop countries in other parts of the world from doing the same.

“We’re opening up Pandora’s box for increasing the cost of everything beyond what the average citizen of any country can afford,” he said.

U.S., China push to control vital waterways

According to Christian Leuprecht, a military expert and political science professor at Queen’s University in Kingston, Ont., the potential spread of tolls is a real threat.

He says Iran’s tolls will prove counterproductive in the long term because the uncertainty is proving the Strait of Hormuz to be a “diminishing asset,” as countries shift their energy strategies to circumvent the passage. At the same time, he says Iran needs the cash it’s collecting from tolls in the short term.

Leuprecht says the strait could end up being overseen by a quasi-international regime, like the 1936 Montreux Convention governing Turkey’s Bosphorus and Dardanelles straits.

He points out that Trump has “long had this fascination” with chokepoints, noting his threats to take control of the Panama Canal early in his second presidential term.

He also notes China, another global superpower, has been pushing to assert control over the Taiwan Strait. Just this month, Beijing designated the maritime trade route as “coastal waters,” declaring it fully under Chinese control, which Taiwan rejected.

“Everybody, I think, is very wary about letting international law drift into a space where countries all of a sudden declare sovereign control over areas that are vital to global stability and global prosperity,” Leuprecht said.