WHY Trump Backtracked on 20% Hormuz fee plan

US President Donald Trump withdrew his proposal to impose a 20% fee on commercial cargo for safe passage through the Strait of Hormuz, replacing it with proposed trade and investment deals with Gulf countries.

The Questions Over the Plan

• The proposal lacked clarity regarding its implementation, calculation and legality under international law.
• The International Maritime Organization maintained that mandatory tolls cannot be imposed for transit through an international strait.
• It was unclear whether the US could guarantee the safety of commercial vessels in the region.
• A fee on total cargo value would have sharply increased shipping costs and commodity prices.
• The proposal contradicted the traditional US position supporting freedom of navigation.

The U-turn

• Gulf countries dependent on the Strait for energy exports may have opposed the proposed fee.
• Concerns over global energy prices, shipping costs and navigational freedom may have influenced the reversal.
• Trump proposed trade and investment deals with Gulf States instead of the 20% fee.

Contested Routes Through the Strait of Hormuz

• Ships were using either routes near Oman’s coast or routes authorised by Iran.
• Iran reportedly targeted vessels that did not use its designated routes.
• The US encouraged ships to use routes closer to Oman’s coastline.

Control of Hormuz

• The fee controversy reflected the broader US-Iran struggle for influence over the Strait of Hormuz.
• An interim US-Iran agreement had promised to keep the Strait open for navigation.
• Vessel traffic increased after the agreement but remained below pre-conflict levels.
• Iran continued regulating shipping routes and requiring vessels to seek permission.
• Differences over the interpretation of the agreement created fresh tensions.

How It Could Have Hit India

• India, as a major importer of West Asian oil and gas, would have faced significantly higher energy costs.
• A 20% fee on oil priced at $75 per barrel could have raised its landed price by about $15 per barrel.
• Every $1 increase in crude oil prices can raise India’s annual oil import bill by up to $2 billion.
• The fee could have added nearly $9 billion annually to India’s oil import costs.
• Imports of LNG, LPG, fertilisers and other industrial inputs could also have become more expensive.