The ongoing conflict between the U.S. and Iran has transformed the Strait of Hormuz into a pivotal theater of military and economic tension, with significant implications for global oil and gas shipping. Prior to the conflict escalating on February 28, roughly 20% of the world’s oil and liquefied natural gas (LNG) traversed this key waterway. However, as maritime intelligence firm Kpler notes, recent days have seen only a handful of vessels managing to navigate these increasingly unsafe waters.
Since July 11, the United States has conducted nightly airstrikes against Iranian military targets, prompting retaliatory strikes from Iran on U.S. forces, Gulf allies, and commercial shipping. The scenario has led regional authorities and shipping firms to adjust operational strategies based on the evolving military threats, as underscored by Kpler’s findings that military developments are overshadowing diplomatic efforts.
The Rising Threat to Maritime Shipping
In its latest report on July 16, the Joint Maritime Information Center (JMIC) recorded ten Iranian attacks on vessels in the Strait since June 25 and continues to issue warnings of heightened risks to marine traffic. “Recent confirmed incidents reinforce that the threat environment remains heightened and warrants extreme vigilance,” mentioned JMIC, which collaborates with the navies of the Combined Maritime Forces to ensure safer passage for commercial shipping. The Iranian Revolutionary Guard Corps (IRGC) has adopted a stringent stance, stating that the Strait is unsafe for petrochemical transportation as long as U.S. military actions persist.
These hostile developments have ramifications beyond military confrontations; they have catalyzed profound changes in the shipping industry. Dimitris Maniatis, CEO of maritime risk management firm Marisks, highlighted during a recent Lloyd’s List Intelligence briefing that crew members are increasingly reluctant to operate in these perilous conditions. He indicated that financial incentives are insufficient to quell the growing trepidation among sailors. “It’s purely about the fear that is governing the decision-making right now,” Maniatis remarked, illustrating the fraught state of maritime operations in the region.
Implementing Tolls: A Possible Solution
In the midst of this turmoil, a novel proposition has arisen: the imposition of tolls on vessels transiting the Strait of Hormuz. This proposal, backed by both Iran and Oman, aims to establish a fee structure to facilitate safer and more reliable trade through this vital corridor. Oxford Economics suggests that introducing a toll system could actually be less burdensome for economic activity compared to the disruptions stemming from the current conflict.
While Iran has hinted at mandatory tolls, Oman is considering a voluntary fee structure akin to what is practiced in the Strait of Malacca. These fees would ostensibly fund navigation safety and environmental protection measures, framing them as services in accordance with international law. The IRGC’s proposed toll of approximately $2 million per Very Large Crude Carrier (VLCC) would equate to around $1 per oil barrel—a slight increase of 1.2% based on current Brent prices.
Although this proposed charge significantly surpasses existing fees in other critical shipping lanes, Oxford Economics estimates that such tolls could yield Iran and Oman up to $6.8 billion annually based on pre-war shipping levels—surpassing the $4.7 billion Egypt receives from the Suez Canal. Moreover, incorporating fees from LNG and other non-crude shipments could further augment revenue.
Challenges and Concerns
The economic rationale for tolls finds some support; however, the potential impact on shipping dynamics cannot be overlooked. The Bourse & Bazaar Foundation, a London-based think tank, advocates for a surcharge targeting the largest oil tankers, arguing that a modest fee would have minimal impact on shipping costs while ensuring that major carriers contribute to the upkeep of the waterway, worth an estimated $600 billion in oil shipments annually according to the International Energy Agency. Despite the potential benefits, higher transit fees could drive exporters to seek alternative routes, further diminishing the expected financial gains.
Notably, regional shifts are already underway. Saudi Arabia has diversified its export routes, significantly increasing shipments via its Red Sea terminal at Yanbu to lessen dependency on the Strait of Hormuz. Meanwhile, DP World, a major logistics player in Dubai, plans to develop a new port in Fujairah to mitigate reliance on the Strait.
Goldman Sachs analysts predict that pipeline capacity in the Middle East will soon enable over 45% of pre-war Gulf exports to bypass the Strait, envisioning this figure could potentially reach as high as 75% by the end of 2028. With a median construction timeline of 2.5 years for regional pipeline projects, the shift away from Hormuz could materialize quickly in response to ongoing supply disruptions.
Conclusion: Navigating Uncertain Waters
The escalation of hostilities in the Strait of Hormuz presents challenges that extend beyond the immediate conflict and into the very fabric of global energy markets. As stakeholders in the maritime industry weigh the implications of proposed tolls against the backdrop of heightened risk, the future of oil and gas shipments through this critical passage remains fraught with uncertainty. The interplay between geopolitical developments and economic strategies will define the next chapter in this complex landscape, shaping the decisions of investors, policymakers, and corporations engaged in international trade.
