24-hour reversal: Trump drops the strait toll and restarts the blockade

Author: Xiao Yanyan, Jinniu Data

Local time on Tuesday, U.S. President Trump announced that he would no longer pursue a plan to impose a 20% fee on cargo shipments transiting the Strait of Hormuz. Just one day had passed since he floated the charge.

Trump wrote on social media: “I have decided to replace the 20% U.S. compensation fee with the trade and investment agreements that the Gulf states will make with the United States.” “Thanks to the strong power of the U.S. Army, oil is flowing through at an unprecedented scale. Special tribute.” He also said the expected revenue would be replaced by direct investments the Gulf states are set to make into the United States, but he did not disclose specific amounts or specify which countries were involved.

When asked why he abandoned the plan, Trump said he had spoken with representatives of Saudi Arabia, Qatar, Bahrain, Kuwait, and the UAE, who urged him to “do it another way” through making financial commitments to the United States. He said: “I don’t like the concept of charging. They are going to make massive investments into the United States, and I prefer it this way.”

During a meeting with the Iraqi prime minister at the White House, Trump told the media he received calls from “different people, different countries,” discussing the idea of investing in the United States in exchange for not moving forward with the strait vessel transit fee plan.

“Saudi Arabia, the UAE, Qatar, Kuwait, and other countries… I spoke with all of them, and they are very willing to invest more money into the United States,” Trump told reporters on Tuesday. “That way, there’s no charging.”

According to people familiar with the matter, it is currently unclear whether the Gulf states have made new financial commitments in response. Another person familiar with the matter said that at least one Gulf-area government stated it had not agreed to swap its agreement for waiving the strait transit fee in return for increasing existing commitments.

Trump’s withdrawal of the charging plan came after continued urging from U.S. Gulf allies. A person familiar with the matter said that after he announced the 20% charging plan on Monday, at least one member country of the Gulf Cooperation Council had contacted the U.S. government, asking for clarification of his remarks; another member country doubted the plan would be implemented at all.

Other sources said the Gulf states are still maintaining a unified stance, with the goal of ensuring that vessels transiting the Strait of Hormuz bear no transit fees or extra charges. A Gulf-region energy official said, after Trump proposed charging on Monday, that all sides were concerned the move would encourage other countries to emulate similar practices in other waterways around the world.

U.S. Energy Secretary Wright, in an interview with CNBC on Tuesday, said the 20% fee is “no longer under discussion.” He said: “This indeed points to a good direction, and we got the right answer, but the Strait of Hormuz won’t charge a transit fee.”

This abrupt turn also reinforces the “TACO” claim formed by traders last year—i.e., “Trump Always Chickens Out.” The nickname was then mainly used to describe Trump’s repeated flip-flops in tariff policy.

Trump’s withdrawal of the charging plan also reflects the policy dilemma he faces right now: on one hand, tensions between the U.S. and Iran have escalated again; on the other hand, Tehran refuses to ease its control over this critical waterway. The Strait of Hormuz is a key global energy shipping route, and any policy change related to transit costs will quickly affect market expectations.

The blockade resumption and military strikes were carried out in tandem, as Trump threatened to attack Iran’s bridge power plants next week

At the same time that Trump called off the charging concept, the U.S. announced the resumption of a shipping blockade on Iran’s entry to and exit from its ports and coastal areas, with the measures taking effect at 4:00 p.m. Washington time on Tuesday (4:00 a.m. Beijing time on Wednesday). Meanwhile, U.S. Central Command announced: At 3:00 p.m. U.S. Eastern time on Tuesday (3:00 a.m. Beijing time on Wednesday), the U.S. military launched a new round of strikes against Iran, aiming to weaken Iran’s ability to attack commercial vessels transiting the Strait of Hormuz.

Currently, the Middle East has more than 20 U.S. naval warships deployed and several hundred military aircraft. The U.S. military remains on high alert, has a capability for lethal strikes, and is ready to act at any moment.

Trump said the strikes on Iran will continue, “until I say ‘enough’.” He also said that on Tuesday the U.S. held talks with Iran, and the U.S. urged Iran to reach an agreement. He added that he would save strikes on Iran’s energy facilities for last. Trump warned: “Next week we will destroy Iran’s power plants and destroy their bridges. Unless they return to the negotiating table, we will destroy all their power plants and bridges.”

This series of moves underscores the Trump administration’s wavering decision-making on the issue of the Strait of Hormuz. For months, U.S. officials have repeatedly changed their stance on questions such as whether “transit should be free” and if not, “who should be charged.” Iran has consistently argued that it controls the strait and that it can regulate transit according to its own preferences.

Dan Shapiro (Dan Shapiro), a former U.S. ambassador to Israel and a senior Pentagon official during the Biden administration, questioned whether restarting the blockade could produce a different outcome. He said: “It’s hard to understand why people would think that restarting a blockade would produce results significantly different from the previous blockade… and besides, they (Iran) still have the same countermeasures.”

Miad Maleki, who previously served as a senior official at the U.S. Treasury and now works at the Foundation for Defense of Democracies, said he believes the most direct and strongest effect of the new blockade could be cutting off part of Iran’s imports—especially gasoline, which Tehran relies on being shipped in from abroad to meet domestic demand.

In Maleki’s view, this would push the Iranian government toward a politically difficult choice: either cut gasoline quotas or raise gasoline prices, and the latter carries political risk in itself. For Iran, gasoline supply affects both everyday consumption and social stability, so the short-term impact of disrupted imports may become apparent more quickly.

However, Maleki also pointed out that a blockade may not hit Iranian oil production and exports with the same severity. The reason is that Iran has already diverted a large volume of crude oil abroad, freeing up domestic storage capacity and making it easier to supply oil outward.

He said: “Iran can still load oil onto existing tankers at Khark Island to ease its extremely limited onshore storage pressure,” but he added that the blockade would cause these supplies to exist in the form of floating inventories at sea. In terms of the order of impact, Maleki believes “the import shock comes faster and is more immediately likely to create instability effects.”

Market reaction and doubts about feasibility

On Monday, when Trump first proposed charging a so-called “compensation fee” for shipping facilitation through the strait, oil prices surged at one point. On Tuesday, after Trump posted that he was shelving the plan, oil prices gave back some of the gains, then rebounded again. Brent crude futures ended up about 2% on the day, at $84.73 per barrel, the highest level in about a month.

ClearView Energy Partners, a Washington-based consultancy, said that if oil is priced at $78 per barrel and a 20% fee is charged on oil cargoes, it could mean an additional cost of about 37 cents per gallon of gasoline. This is not consistent with Trump’s goal of suppressing inflation ahead of midterm elections, when elections are expected to be influenced by voters’ concerns about the cost of living.

Traders, analysts, and industry participants had previously widely questioned the idea, saying it would be difficult to implement and unlikely to be carried out in full, because implementation would be extremely challenging and would harm the U.S.’s allies worldwide. Jay Hatfield, CEO of Infrastructure Capital Management, said plainly before Trump withdrew the plan: “I think this is utterly absurd and completely impractical. This is quintessential Trump-style nonsense.”

According to people familiar with the matter, if the charging were truly implemented, ultra-large oil tankers carrying oil could face costs of about $30 million, far higher than the transit fees collected by Iran. John Calabrese, a senior research fellow at the Middle East Institute, said before Trump changed his mind: “The figure itself seems completely arbitrary, and if implemented, it would amount to extortionate fees.” He also said: “The more fundamental issue is that the proposal treats freedom of navigation more like a service to be sold, rather than an international principle that needs to be maintained.”

No matter whether the fees come from Iran or the United States, the impact would not be limited to just the U.S. and Iran. U.S. allies around the world—including Gulf oil-producing countries and Asian nations that depend on these supplies—would be directly affected. More importantly, this kind of approach could set a precedent for charging similar fees on other international waterways, which coastal states are prohibited from imposing on transiting vessels under international law.

Although Trump temporarily shelved the idea on Tuesday, and a presidential adviser emphasized that the matter is already over, the thinking may not disappear completely. Since early April, he has repeatedly raised the possibility of the U.S. collecting related fees; last month, the late Senator Lindsey Graham also said he supported it. This shows that Trump may still want compensation for U.S. forces’ operations in the strait.

White House Chief Economic Adviser Kevin Hassett previously said the charging was only one of several options the government is considering, with the purpose of seeking financial compensation from shipping operators using the strait.