Can Trump profit from Hormuz by charging admission? — Fareed’s Take

[0:00] Here's my take. It's a beautiful thing, Donald Trump said recently, musing about a joint venture [0:08] with Iran to act as the gatekeepers of the Strait of Hormuz. The same day he posted on Truth Social, [0:14] big money will be made dealing with the traffic buildup there. These are revealing remarks, [0:20] not because they are outrageous. Trump has said many outrageous things, [0:24] but because they distill a worldview. They suggest a shift in how the United States [0:29] might see its role, not as the guarantor of a system, but as the participant in a deal. [0:36] For most of its history, the U.S. has taken a different view. Freedom of navigation has been [0:42] treated not as a privilege to be sold, but as a right to be defended. The Young Republic's first [0:49] military intervention, the quasi-war with France, was fought in part over interference with American [0:55] shipping. Soon after, the U.S. confronted the Barbary pirates, refusing to pay tribute for safe passage [1:02] and instead using force to establish the principle that commerce should move freely across the seas. [1:09] That commitment deepened over time. In the modern era, the United States has patrolled the world's [1:14] oceans, ensuring that critical choke points from the Strait of Hormuz to the Strait of Malacca remain open. [1:21] It is done so at great expense not to extract tolls, but to sustain a global commons. Open seas would [1:30] underpin open trade, which in turn would foster growth, stability, and ultimately peace. That is not how [1:37] Donald Trump thinks. In his view, the Strait of Hormuz is not a global artery, but an asset, something to be [1:44] monetized. Why provide security as a public good when it can be turned into a business venture? Why underwrite a [1:51] system when you can charge admission? This instinct runs deeper than a few words. It reflects his broader [1:58] worldview that sees international relations less as the management of a shared order and of values and more as a [2:06] series of transactions. In that world, every commitment is negotiable, every alliance conditional, every public good, a [2:14] potential profit center. After World War II, the US emerged not just as the most powerful nation on earth, [2:22] but as the architect of an international system built on rules, openness, and cooperation. Washington [2:28] promoted free trade, supported multilateral institutions, and maintained a security umbrella that [2:34] extended far beyond its shores. It didn't do so out of altruism, but because it understood that such a system would [2:41] serve its interests. And they did. A world of open markets and secure sea lanes allowed global commerce to [2:49] flourish with the United States at its center. American companies thrived. The dollar became the dominant [2:56] currency, keeping interest rates low for Americans as the country has borrowed more and more from [3:02] foreigners. U.S. influence extended across continents, not through coercion, but through attraction and [3:08] interdependence. And when Washington did coerce, its power often shrank rather than grew. All this required a certain [3:18] mentality. It meant looking beyond immediate gains to long term advantages. It meant accepting that some [3:25] investments in security and institutions and alliances would not yield quick returns, but would pay dividends over decades. [3:33] It meant understanding that legitimacy and trust are strategic assets. Trump's approach flips that logic. [3:41] It prioritizes the immediate over the enduring, the tangible over the intangible. If allies can be bullied [3:48] into paying more, that's a win. If trade partners can be squeezed for concessions, that's success. If strategic [3:56] commitments can be turned into revenue streams, so much the better. The costs in diminished credibility, [4:03] frayed alliances, frayed alliances, lost trust, and a weakened overall system are diffused and deferred. [4:11] The gains are immediate and visible. The scholar Stephen Walt has called this behavior that of a [4:17] predatory hegemon. The truth is most hegemons were predatory. Great powers have taxed trade routes, [4:25] extracted tribute, and leveraged dominance for direct gain. Rome did it, the Habsburgs did it, [4:32] Napoleon's France and Imperial Germany did it. Even Britain, often seen as liberal, ruled its empire [4:38] in ways that enriched the metropole. What made the United States different was not that it lacked [4:44] self-interest, but that it pursued it in a broader way. It built a system others could join because it [4:51] offered wide benefits. It restrained its power even as it exercised it. It chose, in other words, [4:59] to be an enlightened hegemon, one that understood that the surest way to sustain dominance was to [5:06] make it acceptable. That choice is now in question. To treat the Strait of Hormuz as a toe boot rather [5:13] than a global commons is to misunderstand both history and strategy. The U.S. benefits most not from [5:21] charging per ship for access, but from building a world in which commerce flows freely and Washington's [5:28] central position is reinforced. To abandon that model for short-term extraction is to trade a [5:36] durable advantage for a fleeting gain. If the U.S. becomes just another predatory hegemon, it will [5:44] discover what history has long shown. Such power is feared, resented, and ultimately resisted. And in [5:52] time it is not sustained but overturned. What will a U.S. blockade do to oil prices and what will it do [6:00] to the global economy? What is it all already doing? Joining me now is Karen Young. She's a senior research [6:06] scholar at the Center on Global Energy Policy at Columbia University. Karen, so first of all tell us [6:13] where do things stand right now? It does seem like the markets are assuming that this will all resolve [6:20] itself because the price of oil isn't actually that high given what's happening. The price of oil isn't [6:26] as high as we might expect it to be. That's exactly right. And there's also a lot of difference between [6:31] the futures market and what's being sold sort of ready-to-go barrels or the spot market. I think there's [6:37] some wishful thinking of the ability to encourage more transit of barrels through the Strait of Hormuz. [6:45] That's obviously not resolved. And so since the beginning of this crisis, we've thought about [6:50] sort of two variables. One is the duration of the conflict and the duration of the impediment to transit [6:59] and the damage to oil and gas infrastructure in the region. So those two things are actually getting [7:05] more serious and more detrimental to higher prices. And what does the blockade do in that situation? [7:11] So the blockade creates this extra layer. We had basically a diversion of the blocked oil supply going [7:18] through the pipeline in Saudi Arabia, about 7 million barrels a day there. The pipeline in the UAE, [7:23] about 1.8 million barrels. And the Iranians themselves exporting about 1.6 million barrels a [7:28] day. And the Omanis avoiding the Strait completely. If we have a blockade, we still have the problem [7:35] of a shortage in the market of about 7 million barrels of crude, 4 million barrels of product [7:40] not getting out. And we just added to that by making the Iranian barrels off the market. [7:46] Because the Iranian barrels won't get through. [7:47] Exactly. [7:48] So the price of oil probably tomorrow will go up. [7:50] Probably tomorrow will be another Monday where we had the sort of softening comments towards the [7:55] end of the week by the Trump administration, the announcement of the ceasefire. And now again, [8:00] a bit of a shock. [8:01] President Trump says, when this is all over, oil prices will go down. What's your reaction to that? [8:09] When this is over, it could be a long time from now. And that entails the resumption of traffic, [8:16] no real damage to oil production infrastructure or LNG, [8:21] and some sort of accommodating government in Iran. Those are huge variables which are really, [8:27] really unsolved. So I think for now and into the end of 2026, we're looking at elevated oil prices [8:34] for certain, elevated LNG prices for certain. Because of this sort of time it takes to restart, [8:41] and of course, the unknown of traffic flows getting in and out of the strait now. [8:45] The crisis in Asia is very acute. I mean, in Sri Lanka, they've shortened the school [8:52] week. In Thailand, they're telling government employees don't take elevators. People are being [8:58] told don't use air conditioning. Is it going to get worse in Europe? I mean, the US is probably fine, [9:05] but in places like Europe? Well, we're not fine. I mean, these prices are global. And so we are going [9:11] to see inflationary pressure, both on transit fuels and on food in the US. But yes, Asia has felt the [9:16] pinch first. Any economy that is heavily dependent on energy exports, Philippines, Malaysia, you name it, [9:22] down the list, as you mentioned, those economies are hit the most, especially those also that use [9:27] LPG as a cooking fuel. So it's not just in crude or diesel and jet fuel. What we'll see in the coming [9:35] week or two to Europe is really this jet fuel crunch and refined products. So this is spreading, [9:43] and it creates inflationary pressures that the whole global economy has to deal with. [9:48] It also encourages countries to think about basically hoarding or not, you know, sharing supply. [9:55] And those countries that have the benefit of stockpiles, South Korea, Japan, even India, [10:00] are going to be better off because they can shield their populations from some of that initial shock. [10:05] Poor economies can't do that. And finally, it's not just oil, right? Because petroleum products [10:13] are part of fertilizer, cement, I mean, just plastic, you name it, computer chips can't be made without [10:21] them. That's right. So we're going to start seeing that inflationary pressure, not just in transit, [10:25] but in fuel because of products like sulfur and ammonia, nitrogen that go into the construction of [10:33] fertilizers. But also anything you use that has a pet kim or polymer kind of base, plastics, packaging, [10:41] and that, you know, increases food costs too, is going to be tough. So, you know, think about [10:47] everything you buy at a retail big box store. It has some component that originally came from hydrocarbons.