Will Oil Be Well?

Trump’s 20% toll on Hormuz traffic is ridiculous. India should again activate other import sources for fuel

In the 19th century, US ended piracy by N African states, and in the Caribbean. In the 21st, it took on Somali pirates. But under Trump, it might be turning pirate itself. How else do you explain Trump’s demand of 20% toll on all merchandise passing through Strait of Hormuz? Brazil’s President Lula has already likened it to piracy, and who won’t agree?

Trump’s demand is both outrageous and ridiculous. It’s outrageous because US is self-appointed peacekeeper of the world, and chief exponent of free trade. Until Feb, ships passed through Hormuz freely. Then Trump started a war, made Hormuz dangerous, and now he expects a fee to guarantee ships’ safety. With this demand, he has also legitimised Iran’s earlier claim to a levy on ships. A 20% toll is ridiculous because merchants typically pay 2-3% of the merchandise cost as shipping. Nobody will pay 20%, hence Iran’s gibe: “20% is of course too much. We will be fair”.

But everyone will pay a toll regardless. Oil prices have already risen about 20% in two weeks, as attacks between Iran and US have intensified. After touching a low of $71/barrel, crude shipments for Sept are now being booked at $86, as shipments via Hormuz have reduced to a trickle. On June 24, more than 70 ships had crossed the Strait, but last Sunday the number was down to 14. While oil is still flowing out, no LNG shipment has come through since Saturday. And as we saw in March, gas becomes a crisis faster, because it is hard to stockpile.

A long Hormuz blockade now could push oil and gas prices higher because countries have heavily drawn on their emergency reserves over the past four months. It’s a good thing that India diversified suppliers for all of its hydrocarbon requirements. While Russia became a major supplier from 2022, US, Venezuela and African nations have partially plugged the W Asian supply gap in recent months. Altogether, India’s sourcing oil and gas from around 40 countries. While that won’t shield us from high prices – which move in tandem globally – availability won’t be an issue, hopefully.