Trump's 20% Hormuz transit fee: A potential blow to India's energy imports

US President Donald Trump has proposed a 20% fee on all cargo passing through the Strait of Hormuz, claiming the charge would reimburse the US for providing security in the volatile waterway. While the plan faces significant legal and practical hurdles, it has raised alarm among energy importers like India, which relies heavily on the strait for crude oil, LNG, and LPG supplies.

In a post on his Truth Social platform, Trump declared the US as 'THE GUARDIAN OF THE HORMUZ STRAIT' and announced a 20% fee on all cargo shipped through the strait. The proposal immediately drew scepticism from experts and international bodies. The International Maritime Organization (IMO) stated that it opposes fees on ships using international waterways, calling such charges legally baseless.

Questions also surround the calculation of the fee—whether it would be a percentage of the cargo's value or of the US military's operational costs. If applied to the total value of energy shipments, the cost of oil and gas would rise sharply, hitting countries that depend on the strait.

India is particularly vulnerable. The country imports over 88% of its crude oil, 60% of its LPG, and about 50% of its natural gas, largely as LNG. Approximately 40% of its crude oil, 60% of its LNG, and 90% of its LPG imports transit the Strait of Hormuz. A 20% fee on the value of cargo could increase the landed price of crude oil by $15 per barrel if oil is at $75 per barrel, pushing it above $90. For India, which imports 1.8–2 billion barrels of crude annually, every $1 per barrel increase adds up to $2 billion to the import bill.

The proposal also contradicts the US's traditional stance of supporting freedom of navigation. Critics note that the US has previously opposed Iran's attempts to levy tolls in the strait, and Trump's move could set a precedent for similar charges by other nations.

While the feasibility of implementing such a fee remains uncertain, the potential economic impact on India is clear. The government and industry stakeholders will be closely watching developments, as any additional cost could fuel inflation and strain the country's fiscal balance.