US President Donald Trump’s proposal to impose a 20% toll on cargo ships transiting the Strait of Hormuz has raised new concerns about energy markets globally with the Indian government analyzing the implications of such a measure on its import bill and the prices of fuel in the country.
Even though the move has not yet materialised and is still being legally examined, experts believe that any extra charges involved in passing through the important sea route will ultimately increase the cost of imported crude oil.
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Why is the Strait of Hormuz crucial for India?
The Strait of Hormuz, located between Iran and Oman, connects the Persian Gulf to the Arabian Sea and carries nearly 20% of the world’s crude oil along with significant volumes of liquefied natural gas (LNG).
India imports more than 85% of its crude oil, with a substantial share arriving from Gulf countries such as Saudi Arabia, Iraq, the UAE, Kuwait and Qatar through the Strait of Hormuz.
Any disruption, higher transit charges or increased insurance and freight costs along this route could increase India’s energy import bill and add inflationary pressure.
What has Trump proposed?
Trump said the United States would act as the “guardian” of the Strait of Hormuz and charge cargo vessels a 20% transit fee to cover the cost of securing the waterway.
The announcement followed renewed tensions in the Gulf after the UAE accused Iran of attacking two commercial tankers in the Strait of Hormuz.
However, the proposal has already drawn criticism. Iran’s Foreign Minister Abbas Araghchi, in a post on X, questioned the idea while sarcastically suggesting that a 20% charge was excessive.
Separately, the International Maritime Organization (IMO) told Reuters there is no legal basis for imposing mandatory tolls on transit through an international strait.
Could it raise petrol and diesel prices in India?
Experts believe the immediate concern is not the toll itself but its ripple effects on shipping costs.
If shipping companies face higher war-risk insurance premiums, freight charges or rerouting costs, refiners could end up paying more for imported crude. Those higher costs may eventually be reflected in domestic petrol and diesel prices.
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Rise in the global price of crude can also have an impact on the trade deficit of India and lead to more inflationary pressures.
India has recently taken steps towards diversifying its crude supplies by importing crude from Russia. Yet, it is stated that the Gulf continues to remain one of the largest sources of energy supply for India, thus making it vulnerable to developments in the Strait of Hormuz.
FAQs
Why is the Strait of Hormuz significant for India?
Strait of Hormuz is a strategic passage through which much of the crude oil and LNG supplies to India from the Gulf region pass.
Will Trump’s proposed Hormuz toll immediately increase fuel prices?
Not at all. The proposal is still pending and will have to face several legal issues. However, depending upon how it impacts shipping costs and prices of crude oil, there may be effects on the prices of fuel in India.
