The Iran war is pushing Southeast Asia to debate the once unthinkable: Whether ships will need to pay to transit the Strait of Malacca

On April 22, Indonesia’s finance minister, Purbaya Yudhi Sadewa, suggested the Southeast Asian country might start imposing levies on ships transiting the Strait of Malacca, which connects the Indian Ocean with the South China Sea. The strait is one of the world’s busiest shipping lanes, carrying around 30% of global trade. Two hundred ships travel through Malacca each day, double the number that pass through Hormuz. 

“Iran is now planning to charge ships passing through the Strait of Hormuz,” Purbaya said during a symposium in Jakarta. “If we split [income from levies] three ways—Indonesia, Malaysia, and Singapore—it could be quite substantial.” He added that Indonesia stood to benefit most, given that its stretch is “the largest and longest”. 

Purabaya quickly walked back his suggestion, acknowledging that a decision would require buy-in from both Singapore and Malaysia, which also sit alongside the strait. 

Yet Pubaya’s idea, even if just a hastily raised trial balloon, shows just how quickly the conversation around freedom of navigation has changed in the two months since the outbreak of war in Iran.

Iran is now openly charging tolls for ships to traverse the Strait of Hormuz (often paid in Chinese yuan or cryptocurrencies), and is planning to set up a regime to formalize this control even after the war ends. U.S. President Donald Trump has at times signaled his comfort with Iran charging tolls for ships to pass through the Strait, and even suggested that the U.S. and Iran could jointly manage the waterway as part of a settlement to end the war.

Indonesia, Malaysia, and Singapore

The Indonesian archipelago straddles many of the waterways governing access between the Indian Ocean and the rest of East Asia, which hasn’t escaped the notice of Indonesian officials. President Prabowo Subianto has publicly pointed out that 70% of Asia’s trade travels through the Indonesian straits of Lombok, Sunda and Malacca.

Indonesia’s neighbors have responded differently to the idea of tolling the Strait of Malacca.

“The right of transit passage is guaranteed for everyone,” Singapore’s Minister of Foreign Affairs Vivian Balakrishnan said yesterday during a CNBC event. “We will not participate in any attempts to close or interdict or to impose tolls in our neighborhood.” 

Singapore had previously stated that it wouldn’t negotiate with Iran in order to sail its ships through the Strait of Hormuz, calling Tehran’s closure of the waterway a violation of international law. Ships, under international law, are freely allowed to traverse straits like Hormuz, which don’t fall within one country’s territorial waters.

Several other countries, like India, Thailand and Pakistan, secured safe transit through Hormuz after negotiations with Iran. 

“I can’t engage in negotiations for safe passage of ships or negotiate on toll rates,” Balakrishnan explained during a parliamentary debate on April 7. 

Singapore’s economy relies on free navigation. The city is the world’s largest trans-shipment and bunkering hub, and over 130,000 vessels call at its ports every year. Any limits to transit through the Strait of Malacca are thus a significant threat to its economy. 

Neighboring Malaysia has also expressed caution about plans to impose levies on the Strait, though didn’t reject the idea outright. 

“Whatever is to be done in the Strait of Malacca must involve the cooperation of all four countries,” said Malaysia Foreign Minister Mohamad Hasan on Wednesday, referring to Malaysia, Indonesia, Singapore and Thailand. “It cannot be done unilaterally.”

Yet some in Malaysia have bristled at Singapore’s statements over the Iran conflict. When Balakrishnan in early April said he wouldn’t negotiate with Tehran to secure access through Hormuz, Nurul Izzah Anwar, daughter of Malaysia Prime Minister Anwar Ibrahim, grumbled that “Malaysia will not be lectured on the merits of engagement.”

Thailand sees an opportunity

Thailand, the only other country to sit alongside the Strait of Malacca, has its own plans. On April 20, Deputy Prime Minister Phiphat Ratchakitprakarn said the country will fast-track a plan to build a land bridge between the Strait of Malacca and the Gulf of Thailand. The bridge would link seaports on either side of the country through 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 floated by some Thai administrations to build a canal across the Kra Isthmus, the narrowest part of the Malay Peninsula. Several governments have launched feasibility studies, only to balk at the massive cost involved.

Still, with the fragility of maritime trade now in the spotlight, Bangkok may be looking for an opportunity.

“The Middle East conflict has demonstrated the advantage of controlling a transport route,” Phiphat said. “Thailand will have a great advantage by operating the link between the Pacific Ocean and the Indian Ocean.”