During Asian trading hours on Thursday, July 16th, US crude oil futures were trading in a narrow range near the $80 per barrel mark. Oil prices had risen over 10% in the short term, driven by the US military's resumption of airstrikes on Iran and former President Trump's initial proposal to levy a 20% transit fee on vessels using the Strait of Hormuz.
However, this toll proposal was short-lived, announced on a Monday and retracted by Trump himself the following Tuesday. It was replaced with a framework for a comprehensive trade and investment agreement with Gulf nations. The speed of this policy reversal is characteristic of Trump's diplomatic style.
This abrupt policy shift has raised questions about the consistency of Washington's strategic approach to the Strait of Hormuz, particularly given its previous criticism of Iran's attempts to leverage control of this vital maritime chokepoint for economic gain.
Policy Reversal: From Tariffs to Trade Agreements
On Monday, amidst a new phase of military escalation, Trump announced a fundamental shift in the US strategy for the Strait of Hormuz. He proposed a fee equivalent to 20% of the cargo value for ships transiting the strait, in exchange for military protection provided by Washington.
According to his rationale, this idea stemmed from the significant military resources the US invests to keep the waterway open, while other nations, especially major oil importers, benefit without sharing the cost burden.
Trump even suggested the US would act as the strait's "guardian" or "guardian angel" and deserved compensation for this role.
However, international analysts noted this proposal effectively transformed US military protection of the Strait of Hormuz into a user-pays service—an unprecedented model for a waterway considered an international interest.
International Law and Iranian Opposition
Regarding the legal basis for Trump's claim, the International Maritime Organization reiterated that a "mandatory charge for transit through an international strait lacks legal foundation" and considered such measures a violation of the existing legal framework for freedom of navigation.
The United Nations Convention on the Law of the Sea stipulates that straits used for international navigation are subject to a regime of "innocent passage," where coastal states cannot impede such transit or levy tolls.
Although neither the US nor Iran has ratified the convention, Washington has maintained for decades that its provisions form part of customary international law and are therefore generally applicable.
Iran swiftly rejected Trump's proposal. Iranian Foreign Ministry spokesperson Nasser Kanaani labeled it "economic extortion," asserting that Iran "has been and will remain the sole guarantor and protector of security in the Strait of Hormuz."
Iran has consistently sought to enhance its influence through full control of the strait, leveraging this strategic position as a tool for political and diplomatic pressure.
Analyst Perspective: "Another Bluff"
Journalist and international analyst Andrés Novoa stated that the rapid withdrawal of Trump's proposal indicated it was merely a pressure tactic against Iran, consistent with his usual approach to foreign policy negotiations. "Trump is, as always, looking for ways to pressure Iran. This was just another bluff," Novoa noted, adding that maintaining the measure would carry a high economic cost—increasing global trade expenses and ultimately impacting American consumers themselves. "If he kept it, everything in the world would become more expensive, and US consumers would turn against Trump."
Regarding the impact of this shift on America's international image, Novoa argued the issue is not US military capability but the uncertainty stemming from presidential decision-making. "There is no doubt the US remains militarily very powerful and can knock down any target it wants. The problem is not there," he said. The main concern lies in the effect of these changes on Washington's commercial and political interests. "You have to watch Trump day by day. Today he says one thing, tomorrow another, and the day after that, something different."
Supply-Demand Dynamics and Geopolitical Risks Drive Continued Oil Price Volatility
This rapid policy reversal not only alleviated market fears of a sudden surge in shipping costs but also highlighted the unpredictability of Trump's diplomatic style.
While Trump's withdrawal of the tariff proposal and pivot towards a trade and investment framework with Gulf states averted a severe shock to global supply chains, it did not completely erase the geopolitical risks surrounding the Strait of Hormuz.
Tensions between Iran and the US could persist in other forms, meaning oil prices are likely to remain driven by military developments and policy statements in the short term, with significantly heightened volatility.
Looking ahead, US crude oil futures are expected to trade in a high range between $75 and $85 per barrel. Geopolitical risk premium remains a key supporting factor: amid US-Iran tensions, market concerns about potential disruptions in the Strait of Hormuz are difficult to fully dispel, and any new military or diplomatic friction could push prices higher. OPEC+ compliance with production cuts and growth in US shale oil output will jointly influence the supply side, while the pace of global economic recovery will determine demand.
If economic data from Asia and Europe exceeds expectations, oil prices could challenge levels above $82-$85. Conversely, if the Federal Reserve maintains high interest rates, dampening demand, or if Trump's new trade agreements are successfully implemented, easing tensions, prices could fall to test support between $75 and $78.
Overall, short-term policy uncertainty coexists with the longer-term interplay of supply and demand fundamentals.
As of 11:24 Beijing Time on July 16th, US crude oil futures were trading at $79.71 per barrel.
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