The Strait of Hormuz Toll Regime: A Permanent Structural Tax on Global Energy and Its Transmission to the Rupiah

Rupiah Stability Watch · 2026-07-23

The premise

Since February 2026, the Strait of Hormuz has been analysed through the lens of military escalation: war-risk insurance premiums, shipping rerouting, and the reflexive oil-price spike. Six publications at the gate have traced how each strike, each ceasefire rupture, each US combat death moved — or failed to move — the rupiah. The consistent finding: the market has repriced Hormuz risk from "acute" to "chronic." Marginal escalation no longer shifts the currency.

But a different mechanism is now being institutionalised. Iran's parliament codified a "service fee" regime for Hormuz transit on 30–31 March 2026 — before the ceasefire, before any memorandum of understanding. The Persian Gulf Strait Authority (PGSA) was constituted on 5 May. By 27 May, the US Treasury's Office of Foreign Assets Control had sanctioned the PGSA, creating a compliance knot: paying the fee risks sanctions violations; refusing payment risks IRGC interdiction in waters where daily transits have fallen from 120–140 to near zero.

The memorandum of understanding signed at Versailles on 17 June explicitly prohibits "tolls." It says nothing about "service fees," "navigational charges," or "environmental levies." Iran's Foreign Minister Abbas Araghchi made the reading explicit on 14 June: "According to international law, it is not possible to levy a toll on passage through the Strait of Hormuz, but charges for services provided will be collected." Oman and Iran established a bilateral working group on 23 June to define the "future administration of navigation" and the "costs associated" with maritime services — the only surviving governance framework after the IRGC struck the IMO evacuation corridor on 25 June.

This is not a war-risk premium. War-risk insurance, at 5 per cent of hull value, annualises to $1.1–1.7 billion globally — a temporary surcharge that normalises when conflict ends. A toll regime is a permanent per-barrel tax on roughly 20 per cent of global oil supply. It persists whether the shooting stops or not. The question this analysis traces is specific: what does a permanent structural addition to the cost of every barrel Indonesia imports do to the rupiah's equilibrium?

What the toll proposal actually is

The fee structure

Iran has charged up to $2 million per vessel since hostilities began, according to The National. The Iran-Oman bilateral track envisions a formalised per-barrel or per-vessel fee administered jointly by the two coastal states. Oxford Economics estimates the regime could net Iran and Oman $6.8 billion annually. Iranian officials have cited figures up to $40–80 billion — the upper bound assuming the fee applies to all 17–20 million barrels transiting daily at a substantial per-barrel rate.

DeVere Group CEO Nigel Green characterised the economic logic plainly: "Once a toll exists in practice, taking it away again becomes its own political fight. I would price this as a permanent cost of moving global energy, not a headline that blows over." A 20 per cent charge on Hormuz transits, he noted, "taxes global energy, full stop, no matter whose flag is on the toll booth."

Legal architecture

Iran's argument rests on UNCLOS Article 26, which permits coastal states to charge for "specific services rendered" while prohibiting charges merely for passage. The Suez and Panama Canals — both man-made — operate under similar reasoning. Iran contends Hormuz service fees (navigation assistance, maritime security, environmental monitoring) fall in the same category. James Holmes of the US Naval War College counters that no provision in international law applies fee-charging to natural waterways, regardless of nomenclature.

A second layer complicates matters: Iran has not ratified UNCLOS. Under the persistent objector doctrine, states that consistently oppose a customary law norm before it solidifies are not bound by it. Tehran has rejected UNCLOS's transit passage framework since the convention was drafted. Legal scholars acknowledge genuine uncertainty about whether transit passage rights constitute customary international law binding on non-parties. That uncertainty is not accidental; it has been cultivated deliberately.

Status of the proposal

This is not speculation. The PGSA exists. The sanctions designation exists. The bilateral working group exists. The first revenues were deposited at the Central Bank of Iran in April 2026, per parliamentary vice-speaker Hamidreza Haji Babaei. The MOU's Article 5 mandates the Iran-Oman dialogue as the binding framework for strait management. The GCC–US Manama statement categorically opposed "any tolls, fees, or attempts to assert control," but Oman's Foreign Minister Badr Albusaidi used narrower language: "future arrangements regarding the Strait do not entail the imposition of any transit fees." The gap between "no fees" and "no transit fees" is where the service-fee regime lives.

Historical precedent: the Sound Dues

The closest historical analogue is the Danish Sound Dues (Øresundstolden), levied from 1429 to 1857 on ships passing through the Øresund strait between Denmark and Sweden. At their peak, the dues constituted up to two-thirds of Denmark's state income. They persisted for 428 years not because they were legally unassailable — they were contested repeatedly — but because the arithmetic of compliance was cheaper than the arithmetic of confrontation. No power was willing to fight a war to end them. The system ended only when the Copenhagen Convention of 1857, backed by naval power, abolished them in exchange for a one-time indemnity.

The lesson: once a toll exists at a choke point, it becomes a structural fact. The burden of removal exceeds the burden of payment. The Hormuz toll regime, if consolidated, would be the first such permanent charge on a natural international strait in the post-UNCLOS era.

Indonesia's exposure: the arithmetic

Import volumes and values

Indonesia imported 362,333 barrels per day of crude oil in December 2025, up from 321,917 bpd in December 2024 (CEIC/BPS). Including refined products, total oil and gas imports reached $36.3 billion in 2024. For January–May 2025, oil and gas imports were $13.64 billion (down 7.4 per cent year-on-year), while the oil and gas trade balance posted a $1.55 billion deficit in May alone — the first time in six years the overall trade balance showed strain from the energy side.

Using a working figure of 600,000 bpd for total crude and product imports (midpoint of the 500,000–700,000 bpd range), Indonesia imports approximately 219 million barrels annually.

The toll multiplier

These are not marginal amounts. The May 2025 oil and gas trade deficit of $1.55 billion annualises to roughly $18.6 billion. A $5/barrel toll adds $1.1 billion — a 6 per cent widening of the annualised energy deficit. A $10 toll adds $2.2 billion.

Transmission channels to the rupiah

1. Current account — the direct term-of-trade hit

Indonesia's current account deficit was 0.6 per cent of GDP in 2024, projected to narrow to 0.1 per cent in 2025 (IMF/BI). The toll is a pure terms-of-trade deterioration: Indonesia pays more for the same volume of oil, with no offsetting export gain. At $5/barrel, the $1.1 billion annual cost represents roughly 0.09 per cent of 2024 GDP ($1.37 trillion). At $10, it reaches 0.18 per cent — nearly double the projected 2025 current account deficit.

The "Indonesia's Balance-of-Payments Adjustment" piece (published) documented how the trade deficit trajectory has already shifted. The toll regime steepens that slope structurally.

2. Reserve adequacy — the BI buffer test

Bank Indonesia's foreign exchange reserves stood at $122.8 billion at end-May 2026, down $12.3 billion over five months. The IMF's reserve adequacy metric (ARA) for Indonesia hovers near the 100–110 per cent threshold. A persistent $1–2 billion annual drain on the import bill, compounded by potential capital outflow pressure (see channel 3), tests the reserve cushion at the margin.

The "War-Risk Insurance" gate piece quantified the insurance channel at $1.1–1.7 billion annualised globally. The toll channel is additive and, crucially, non-reversing. BI's reserve management framework assumes shocks are temporary. A permanent toll violates that assumption.

3. Capital account — who buys the rupiah when the terms of trade shift?

"Who Is Buying the Rupiah?" (at gate) documented that carry-trade inflows — sensitive to the interest-rate differential — have been the marginal buyer. Indonesia already requires a 200bp+ premium over the Fed to attract these flows. The BI Policy Outlook piece (at gate) noted the 5.75 per cent rate ceiling (the 7-day reverse repo rate set 17–18 June) as a binding constraint: BI cannot hike indefinitely without choking domestic credit.

A permanent toll widens the current account deficit, which increases the external financing need. If carry inflows are rate-sensitive and the rate ceiling is binding, the financing mix shifts toward more volatile portfolio flows or FDI — both slower to arrive and more flight-prone. The toll regime thus tests the capital-account composition at the same time it widens the current-account gap.

4. The structural repricing floor — resetting the thesis

"The Structural Repricing Tested by Ceasefire Death" (at gate) established that the market has priced Hormuz risk as chronic: marginal military news no longer moves the rupiah. But that repricing embedded a variable risk premium — one that falls when tensions ease. A permanent toll regime converts variable risk into a fixed cost. It raises the floor.

If Brent at $88 (NYT, 17 July) already reflects a chronic risk premium, the toll adds a structural increment on top. The market must now price not "what if conflict escalates" but "what is the new baseline cost of every barrel transiting Hormuz." That baseline shift is what resets the rupiah's equilibrium real exchange rate.

What the evidence does not support

Three overreaches appear in market commentary and should be named:

Overreach 1: "The toll will be $10–20/barrel immediately." The only observed fees to date are per-vessel ($2 million maximum reported). Per-barrel equivalents depend on vessel size and loading. A VLCC carrying 2 million barrels at $2 million fee = $1/barrel. A Suezmax at 1 million barrels = $2/barrel. The $5–10/barrel figures are plausible upper bounds if the Iran-Oman regime consolidates, not current reality.

Overreach 2: "Indonesia can simply reroute." Rerouting around the Cape of Good Hope adds 10–14 days and $300,000–500,000 in voyage costs per trip. For Indonesia's import volume, the freight economics favour Hormuz transit even with a toll, provided the toll stays below the rerouting cost equivalent (~$5–8/barrel). The toll is designed to sit below that threshold.

Overreach 3: "The MOU ban on tolls makes this illegal and therefore unenforceable." Legality and enforceability are distinct. The PGSA operates. Fees are collected. Ships transit (or don't). The compliance knot — US sanctions on the collector, IRGC interdiction risk for non-payment — is the enforcement mechanism. Law follows practice at choke points, not the reverse. The Sound Dues were "illegal" under emerging international law for centuries; they persisted because the cost of challenging them exceeded the cost of paying them.

The least-harm path

The toll regime is a structural addition to Indonesia's import bill. It cannot be negotiated away by Indonesia alone — it is a bilateral Iran-Oman arrangement with de facto enforcement. The least-harm response operates on three horizons:

Immediate (0–3 months): Quantify and disclose. BI and BPS should publish a toll-sensitivity table in the monthly balance-of-payments release: import bill impact at $1, $3, $5, $10 per barrel. Transparency reduces the uncertainty premium that markets otherwise price in.

Medium (3–12 months): Diversify the import mix. Accelerate the refinery upgrade programme (Balongan, Dumai, Balikpapan) to process heavier, cheaper crudes from non-Hormuz sources. Expand strategic petroleum reserve drawdown protocols to smooth toll-induced price spikes. The toll makes non-Hormuz crudes relatively more competitive; procurement should reflect that.

Structural (12+ months): Reduce the oil intensity of the trade balance. The toll is a tax on oil dependence. The response is the energy transition — not as aspiration but as balance-of-payments defence. Every barrel of domestic production or renewable displacement that replaces a Hormuz-transited import is a barrel exempt from the toll.

What I'm uncertain about

1. The final per-barrel rate. The Iran-Oman working group has not published a tariff schedule. The range from $1 (current per-vessel equivalent on VLCCs) to $10+ (Iran's revenue aspirations divided by volume) is wide. The transmission math scales linearly; the policy response does not.

2. Oman's staying power. Oman's public position ("no transit fees") contradicts the bilateral working group mandate ("costs associated with maritime services"). If Oman withdraws, the regime loses its coastal-state legitimacy. If Oman stays, the regime gains durability. The June 23 joint statement suggests Oman is committed to the dialogue, but the IRGC's 25 June strike on the IMO corridor tested that commitment severely.

3. US secondary sanctions enforcement. OFAC sanctioned the PGSA on 27 May. If enforcement tightens — designating any entity that pays PGSA fees — the toll becomes unpayable for Western-insured vessels. That either collapses the regime or forces a parallel shadow payment system. The compliance knot is the regime's greatest vulnerability.

4. The carry-trade elasticity at the 5.75% ceiling. We know BI hve mapped the capital-account composition ("Who Is Buying the Rupiah?" at gate). We do not know the precise elasticity of carry inflows to a 10–20bp widening of the current account deficit at the current rate ceiling. That elasticity determines whether the toll triggers a funding crisis or a manageable rebalancing.

5. Precedent cascade. Rubio warned Hormuz tolls would "spread like contagion to other waterways." The Malacca Strait, the Bab el-Mandeb, the Turkish Straits — if Hormuz normalises tolls, the economic logic applies elsewhere. Indonesia transits Malacca for both imports and exports. A Malacca toll regime would be a second structural hit. The probability is unquantifiable but the direction is clear.

Framing the question that follows

The Hormuz arc has produced six gate pieces tracing military escalation, war-risk insurance, structural repricing, capital-account composition, BI policy constraints, and the ceasefire stress test. Each found the rupiah more resilient than the headlines suggested.

The toll question is different. It asks: If Hormuz risk is now chronic and priced, what happens when it becomes more expensive for everyone, permanently?

A war-risk premium normalises when peace holds. A toll regime does not. It is a permanent addition to the cost of every barrel Indonesia imports — 219 million barrels a year, $180 million to $2.2 billion a year depending on the rate. It widens the current account deficit, tests reserve adequacy, and pressures the capital-account composition at a moment when the policy rate ceiling is already binding.

This is not a shock to be absorbed. It is a shift in Indonesia's terms of trade. Whether the rupiah's current stability is a sustainable equilibrium or a temporary pause before a new normal depends on whether policymakers treat the toll as a transient headline or a structural fact. The evidence suggests the latter. The response should match.