President Trump has backed away from the proposed 20 per cent toll on cargo ships passing through the Strait of Hormuz after strong pushback from Gulf nations, while US military forces in the area remain on high alert. The proposal of a toll was widely discouraged, and was criticised even by figures close to Trump, including the US vice-president J.D. Vance.

President Trump gave in to pressure from the Gulf states, as missiles continue to fall on Iran. Both Tehran and Washington are trying to affirm control over the Strait of Hormuz, fundamental for the transit of crude oil and of gas.

The proposal and the reversal

After threatening to impose a tax on all goods passing through the Strait of Hormuz, the US President made yet another U-turn just a few hours later.

On his Truth Social network, Trump said “Based on highly productive conversations with Middle East leadership, I have decided to replace the 20% United States Reimbursement Fee with Trade and Investment Deals that the various Gulf States will be making into the United States.”

This reversal is of importance because it demonstrates just how quickly a high-stakes economic threat can give way to diplomacy when confronted with political and commercial pressure. It also leaves open the broader contradiction at the heart of the episode: even as Washington softens its economic stance, the military situation around Hormuz remains tense, keeping markets and governments on edge.

Why Gulf states pushed back

The states of the Persian Gulf opposed the proposal of the toll from the beginning, their principal concern being that this measure would raise trade and energy costs, and ultimately make trade with these countries even more difficult and costly than it already is.

In a meeting in the Oval Office with the press, following a bilateral with the Iraqi prime minister Ali Falih Kadhim al-Zaidi, Trump explained that he had spoken to leaders in the Middle East that were alarmed by the announced 20 per cent toll, and that, although he thought the idea was feasible, it was not right to protect Hormuz so that hostile countries such as China can benefit.

Beyond the purely political implications of the measure, shipping companies and insurers saw the measure as destabilising and also incredibly difficult to enforce, beyond being illegal since international maritime law guarantees transit passage through the strait.

For this reason, Trump’s toll plan was deemed impracticable from the start, both from a legal perspective, as well as for economic reasons, as its cost would have been excessively large.

Why Hormuz matters to markets

The Strait of Hormuz is fundamental to international trade as well as global energy supply, so even a short disruption quickly filters through to oil prices, freight rates, and insurance costs. In the past few days, renewed tensions between Washington and Tehran have already pushed Brent crude to more than 87 dollars a barrel, underlining how sensitive markets are to any escalation around the waterway.

The proposed 20 per cent toll would likely have added another layer of pressure by raising the cost of shipping through one of the world’s most important chokepoints. In practice, that would have translated into higher transport costs for oil cargoes, tighter margins for refiners and traders, and more expensive insurance for vessels operating in the Gulf, with the risk of delays and rerouting feeding further into supply chains.

For energy markets, the key issue is not just the direct fee but the signal that it sends: if passage through Hormuz becomes more expensive or less predictable, traders will tend to price in a higher geopolitical risk premium. This can amplify volatility in crude benchmarks, worsen expectations for fuel costs, and ripple into broader import prices for Europe and Asia, especially for economies dependent on Gulf supply.

Prior to the invasion of Iran and the blockade of the Strait of Hormuz, it represented a fundamental passage for world trade. The United Nations Conference for Trade and Development (UNCTAD) statistics reveal that thirty-eight per cent of the world’s crude oil passed through the Strait, while 29 per cent of LPG passed through Hormuz.

The policy reversal does not change the security reality on the ground, where the Strait of Hormuz remains a volatile flashpoint and where US naval activity continues to shape the situation. Charging ships to pass through the waterway would also raise serious legal questions, since Hormuz is a vital international transit route and any attempt to control access would be heavily disputed, points raised by many in Trump’s inner circle including vice-president Vance and the Secretary of State Marco Rubio.

Even without the toll, the wider conflict keeps the strait at the centre of the confrontation, with consequences far beyond the region.

Moving forwards, while the price rises linked to this measure - which would likely have been passed on quickly to consumers - it remains to be seen what will happen in the strait. After a period of increased calm following the ceasefire, which Trump declared to be over on 8th July, military action has increased and the tensions are rising, while crude oil prices continue to rise as a direct consequence.