Iran's Toll Booth Demand Threatens Energy Markets with Higher Prices

A two-week ceasefire brokered by Pakistan between the US and Iran has temporarily reopened the Strait of Hormuz, but Tehran's demand to act as a 'toll booth keeper' at the world's most critical oil chokepoint could have far-reaching consequences for energy markets.

The agreement, announced on Tuesday, allows for the resumption of oil and gas traffic through the strait, which has been closed for nearly six weeks due to the US-Israeli war on Iran. However, under a permanent peace deal, Tehran has indicated that it would seek to charge a fee for ships transiting the strait.

The toll itself could be as high as $2 million per transit, roughly equal to the total cost of chartering a very large crude carrier from the Middle East to China for an entire voyage in 2025. Beyond the toll, elevated security risks would push insurance premiums higher for tankers and LNG carriers entering the Gulf.

Saudi Arabia and the UAE are likely to maintain alternative oil export routes used during the conflict for many months, if not years. The East-West pipeline can carry 7 million barrels per day, of which around 5 million bpd are available for export.