Trump's dropped Hormuz fee doesn't make the strait any safer for shippers

Protection through Hormuz will not come with a 20% price tag after all — but the strait got a lot more dangerous anyway. US President Donald Trump on Tuesday scrapped his proposed 20% charge on cargo shipped through Hormuz less than a day after announcing it, indicating he would rather see “massive investments” from Gulf states rather than collect a fee. Hours later, the US resumed its blockade on Iranian shipping and carried out a seven-hour wave of strikes on targets near the strait and along Iran’s coast, Bloomberg reports.

The bigger problem is that Hormuz remains unsafe at any price. The International Maritime Organization (IMO) is advising commercial vessels not to risk transiting the strait — its strongest navigational warning since the interim peace agreement unraveled. The UN agency scrapped a program to evacuate seafarers trapped aboard ships in the Gulf after Iran resumed attacks on commercial vessels, with observable transits since collapsing. Speaking on Bloomberg Radio, IMO Secretary General Arsenio Dominguez said there is no basis under international law for imposing tolls or mandatory payments for passage through the waterway.

The fee is gone — what replaces it is anyone’s guess: Trump didn’t name a specific figure nor which Gulf states would participate in the investment agreements, and at least one regional government said it never agreed to increase its existing commitments in exchange for the fee being dropped. “They could encompass a range of bilateral arrangements, including investment commitments, energy cooperation, defense and security partnerships, or broader trade agreements. Until further details emerge, it is difficult to assess whether these agreements would have any direct impact on shipping costs or trade flows,” Antonella Teodoro, senior transport consultant at MDS Transmodal, tells EnterpriseAM.

Trump didn’t specify what the 20% would have been charged on, and the distinction would’ve been significant. A cargo-value basis would run far higher since cargo value typically dwarfs the cost of shipping it. Had the fee been applied to cargo value, it would’ve dwarfed the freight bill — at USD 80 / bbl, a 20% charge would have added USD 16 / bbl to the roughly USD 10 / bbl it costs to ship Gulf crude to Europe, taking the combined burden to around USD 26 / bbl before ins. and other surcharges, the New York Times reports. For a fully laden supertanker carrying around 2 mn barrels, that would have translated into a roughly USD 32 mn charge per voyage.

Does this fee removal mean we can breathe? Not quite. “The reversal removes the immediate threat of a broad-based surcharge, which should provide some relief to carriers, shippers, and charterers. However, it does not necessarily restore confidence. Markets value predictability and frequent policy shifts make it more difficult for businesses to plan investments, negotiate contracts, and manage risk,” Teodoro tells us.

“Hope for the best, prepare for the worst,” Teodoro notes. Shipping and trading companies are reviewing supply chains, investment plans, and contingency measures now, without assuming diplomatic progress or clearer policy will arrive first — that’s the mindset across the industry,” Teodoro says. “This reflects a broader shift towards building resilience against geopolitical risk, regardless of whether the proposed fee ultimately materializes or is replaced by other policy measures,” she adds.

Wait and see doesn’t mean sit and wait: “The key issue is that the market remains in watch-and-see mode — but one characterized by active preparation rather than inaction. The removal of the proposed fee reduces one immediate source of concern, but uncertainty persists because participants are unsure what, if anything, will replace it. Unless the administration provides greater clarity on its longer-term strategy, volatility remains elevated,” Teodoro argues.

Hormuz remains too expensive to absorb, and too essential to avoid. Even if the fee had been imposed, the charge would’ve been unlikely to divert shipping on a large scale because Hormuz remains indispensable to several Gulf exporters, and alternative routes cannot absorb existing volumes. The pressure would instead have moved upstream and downstream. Importers would’ve faced higher energy and commodity prices, while Gulf exports would’ve become less competitive against supplies from outside the region. If markets couldn’t absorb the additional cost, exporters could’ve ultimately faced weaker lifts and pressure to cut production, Teodoro says.