Trump’s idea of ​​a “protection fee” was dangerous – The new proposal limits the effects

Last week’s appeals by the Council of the International Maritime Organization (IMO) that the Strait of Hormuz should remain free of all customs and other charges may have helped.

President of the United States Donald Trump unexpectedly announced on Monday on its social media channel Truth Social that the country will begin charging a 20 percent “protection fee” to cargo ships passing through the Strait of Hormuz. The payment would be calculated from the value of the freight.

On Tuesday night, the president changed his mind. Now Trump wants to replace the protection fee with trade and investment agreements that the various Persian Gulf states would make with the United States.

Trump says that he reached a solution after having discussions with the leaders of the Middle East. Trump’s new proposal is clearly more limited in its effects than the first proposal for a general protection fee, which would have practically had a radical effect on the oil trade in Europe and Asia.

Although Trump says the future investments of Middle Eastern countries in the United States will be massive, the protection fees would have been politically much more dangerous for world trade.

Current maritime law generally prohibits states from charging ships for passing through territorial waters. Of course there are exceptions, but they are related to human-built shipping lanes such as the Panama or Suez canals. The United States is a member of the IMO, but it did not stop Trump on Monday.

Both the news service Bloomberg and the Financial Times calculated that at a crude oil price of $80 per barrel alone, the payment would have meant an additional price of $15, or a payment of $30 million for a full supertanker carrying two million barrels of crude oil.

This would have been a freezing addition to the price of crude oil passing through the Strait of Hormuz. It would have particularly affected the oil markets of China, the rest of Asia and Europe. About a fifth of the world’s oil and gas passes through the strait.

Politically, an even bigger problem would have been that the customs issue of the international waterway could have opened Pandora’s box.

According to the current interpretation of the maritime law, fees cannot usually be charged for transport on a natural waterway, if this has not been separately agreed upon. Tolls in the Bosphorus are regulated by the Montreux Agreement, which allows Turkey to charge small fees to ships for using the strait.

The Danish Juutinrauma customs duties were officially stopped as early as 1857 by an international agreement. It was one of the reasons why, by the end of the 19th century, the free use of the high seas was a widely accepted principle of international law, especially in Western countries.

The Strait of Hormuz is basically a water area subject to international maritime law, if the United States and Iran would respect this law. One can doubt this. Neither country has ratified the UN Convention on the Law of the Sea, which regulates international maritime traffic.

There are other narrow waterways in the world from the Strait of Malaga to the Strait of Gibraltar. In the Middle Ages, hundreds of states and city-states levied tolls on ships in straits, harbors and coastal waters.

Limiting freedom of navigation would have been a real disservice to international trade and a country like Finland that depends on exports.

Now Trump’s new proposal should only target the oil states of the Middle East. Time will tell how this works in practice. Are the oil nations really willing to invest billions of dollars in the United States, which would likely have a negative impact on the countries own ambitious internal investment projects.