Mr. Trump abandoned the plan to collect tolls through the Strait of Hormuz

“After fruitful talks with Middle Eastern leaders, I decided to replace the 20% fee paid to the US with trade and investment agreements that Gulf countries will make with the US,” US President Donald Trump wrote on the social network Truth Social on July 14.

Just a day before, he announced to re-impose a blockade on Iranian seaports, and collect a fee equivalent to 20% of the value of goods from ships passing through the strait. He explained that this is a necessary expense for the US to carry out its mission of ensuring security and safety through this important waterway. World oil prices have increased more than 10% because of this information.

However, after the announcement of withdrawing the above fee, the market began to cool down. Each barrel of Brent is currently only 84 USD, while WTI is 78 USD, down about 2 USD compared to this afternoon.

Middle East tensions have escalated again since last weekend, causing both the US and Iran to conduct new attacks on each other. The Navy of Iran’s Islamic Revolutionary Guard Corps announced the closure of Hormuz, after firing warning shots at a commercial ship.

Before Mr. Trump’s announcement on the evening of July 14, President of consulting firm Lipow Oil Associates (USA) Andy Lipow estimated that the proposed fee would increase the price of each barrel of oil passing through the Strait of Hormuz by $16 a barrel. The fee would also threaten global oil supplies. The market had expected a sharp increase in supply after the US and Iran signed a memorandum of understanding last month. However, that optimism is dwindling. “The possibility of oversupply will be difficult, especially if the Strait of Hormuz is completely closed,” he said.

Citi Bank also warned that applying the above fee increases the risk of large-scale military confrontation in the short term. “We believe that the risk of military escalation will increase significantly if this announcement is implemented,” Citi commented in a report on the morning of July 14.

“The possibility that the Iranian government will abandon the memorandum of understanding until the midterm elections in the US are completed is increasing. This scenario will likely cause oil prices to remain high for a longer period of time,” analysts at Citi forecast.

Before the war, about 20% of global oil and liquefied gas flows passed through the Strait of Hormuz. Ship traffic decreased sharply from early March and only began to recover after Washington and Tehran signed a ceasefire agreement.