Shipping Faces Tough Choices on Whether to Pay for Access to Hormuz
Iran is demanding a fee for passage through the Strait of Hormuz, hoping to raise funds and to normalize its control over the world's most important choke point for energy shipping. The question for shipowners is simple: is it a good idea to pay, and if so, who will cover the cost?
Since March, the Islamic Revolutionary Guard Corps has generated extraordinary political leverage for Iran by metering out transit rights and attacking ships at will; by one calculation, a transit fee could also generate up to $90 billion in annual revenue.
The fee structure for the passage has been reported widely. It is said to amount to about $1 per tonne of oil for tankers, and more if the vessel is affiliated with a less-favored nation. Some nations with trade ties to Iran - e.g., China, India and Pakistan - have received free transit rights for a limited number of vessel movements. For now, it appears that the terms for each vessel transit are negotiated by a sponsoring nation.
Smaller, independent owners face a difficult choice with this structure. Is it better to wait, in the hopes of a return to normal navigation, or to pay Iran for passage? The act of knowingly transferring money to the IRGC - a U.S.- and EU-designated terrorist organization - could end in accusations of sanctions violations, and most owners have a low tolerance for sanctions risk. According to tanker market commentator Ed Finley-Richardson, "if you speak to owners, there is zero indication that anyone is paying . . . or even considering paying." On the other hand, Lloyd's List and Bloomberg report that (per their sources) fees have been paid by owners previously, using yuan and cryptocurrency for settlement.
The insurance markets suggest that owners are planning to make the run, whether paying a toll or not. Brokerage McGill and Partners told Bloomberg that it is fielding "huge volume requests" for war risk cover for passage through the strait, a sign of preparation to resume navigation.
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As a strategic matter, paying the toll may be the most realistic option for "reopening" the strait for neutral shipping, writes Guntram B. Wolff for Bruegel. "The world economy is largely indifferent to a Hormuz toll as long as oil supply is restored. The burden does not fall on global consumers, but overwhelmingly on the Gulf states that supply the oil that transits the strait," writes Wolff. "But even the Gulf states would be better off than in the current conflict situation in which their oil exports have been stopped."
In the long run, the fee structure commonly reported may be too expensive to work economically, commented Martin Kelly of EOS Risk Group. "The $1 per barrel / $2m per laden tanker, in crypto/yuan is not sustainable for GCC states’ exports, global imports and importantly, the consumer," he wrote in a comment Thursday morning. "So, something has to change."
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