Iran’s decision to impose fees on ships transiting the Strait of Hormuz — and U.S. President Donald Trump’s tentative endorsement of that idea — is having repercussions in a different waterway 4,000 miles away.
On April 22, Indonesia’s finance minister, Purvaya Yudhi Sadewa, suggested that the Southeast Asian country may begin imposing duties on ships transiting the Strait of Malacca, which connects the Indian Ocean to the South China Sea. The strait is one of the world’s busiest shipping lanes, carrying around 30% of global trade. Two hundred ships pass through Malacca every day, double the number that pass through Hormuz.
“Iran is now planning to charge ships passing through the Strait of Hormuz,” Purbaya said at a conference in Jakarta. “If we are divided [income from levies] Three ways – Indonesia, Malaysia and Singapore – it can be very important.” He added that Indonesia has benefited the most, because its expansion is “the biggest and longest”.
Purba quickly withdrew his suggestion, admitting that the decision would require buy-in from both Singapore and Malaysia, which sit on the strait’s edge.
Yet Purbaya’s idea, just a hastily raised trial balloon, shows how quickly the conversation about freedom of navigation has changed in the two months since the war in Iran began.
Iran is now openly charging tolls for ships to cross the Strait of Hormuz (often paid in Chinese yuan or cryptocurrency), and plans to establish a regime to formalize this control even after the war ends. US President Donald Trump has signaled his comfort with Iran sometimes charging tolls for ships to pass through the strait and suggesting that the US and Iran could jointly manage the waterway as part of a deal to end the war.
Indonesia, Malaysia and Singapore
The Indonesian archipelago spans several waterways that control access between the Indian Ocean and the rest of East Asia, which has not escaped the attention of Indonesian authorities. President Prabowo Subanto revealed that 70 percent of Asia’s trade goes through Indonesia’s Lombok, Sunda and Malacca.
Indonesia’s neighbors have reacted differently to the idea of tolling the Malacca Strait.
“The right to a transit pass is guaranteed for everyone,” Singapore’s Foreign Affairs Minister Vivian Balakrishnan said on a CNBC program yesterday. “We will not participate in any effort to close or prohibit or impose tolls on our neighborhoods.”
Singapore has previously said it will not negotiate with Iran over the passage of its ships through the Strait of Hormuz, saying Tehran’s closure of the waterway violates international law. Under international law, ships are allowed to freely pass through the Straits of Hormuz, which do not fall within a country’s territorial waters.
Several other countries such as India, Thailand and Pakistan have secured safe transit through Hormuz after negotiations with Iran.
“I cannot engage in negotiations for safe passage of ships or negotiate on toll rates,” Balakrishnan clarified during a parliamentary debate on April 7.
Singapore’s economy depends on free navigation. The city is the world’s largest transshipment and bunkering hub, and more than 130,000 ships call at its ports each year. Any limitation of transit through the Malacca Strait is thus a significant threat to its economy.
Neighboring Malaysia has also expressed caution about plans to impose tariffs in the strait, though has not ruled out the idea outright.
Malaysian Foreign Minister Mohammad Hassan said on Wednesday, referring to Malaysia, Indonesia, Singapore and Thailand, “anything to be done in the Straits of Malacca must involve the cooperation of all four countries.” “This cannot be done unilaterally.”
Yet some in Malaysia have opposed Singapore’s stance on the Iran conflict. When Balakrishnan said in early April that he would not negotiate with Tehran to secure access through Hormuz, Nurul Izzah Anwar, daughter of Malaysian Prime Minister Anwar Ibrahim, complained that “Malaysia will not be lectured on the merits of engagement.”
Thailand saw an opportunity
Thailand, the only other country bordering the Straits of Malacca, has plans of its own. On April 20, Deputy Prime Minister Phiphat Ratchakitprakaran said the country would fast-track plans to build a land bridge between the Straits of Malacca and the Gulf of Thailand. The bridge will connect ports on both sides of the country via road and rail networks, potentially cutting transit time by four days and shipping costs by 15%.
The land bridge — which is expected to cost 1 trillion Thai baht ($31 billion) — is a less radical version of a plan by some Thai administrations to build a canal across the Kra Isthmus, the narrowest part of the Malay Peninsula. Many governments have initiated feasibility studies, only to incur huge costs.
Still, with the fragility of maritime trade now in the spotlight, Bangkok may be looking for an opportunity.
“Middle East conflicts have shown the benefits of controlling traffic routes,” Fifat said. “Thailand will benefit greatly by operating a link between the Pacific Ocean and the Indian Ocean.”
This story was originally featured on Fortune.com
