Indonesian Finance Minister Raises Possibility of Imposing Toll on Strait of Malacca |
ASEAN Beat | Economy | Southeast Asia
Indonesian Finance Minister Raises Possibility of Imposing Toll on Strait of Malacca
Whether or not it was serious, Purbaya Yudhi Sadewa’s suggestion is a sign of how far the norm of freedom of peaceful navigation has been eroded by the Iran war.
Cargo ships pass Singapore via the Strait of Malacca.
Indonesia’s finance minister yesterday raised the idea, albeit half-jokingly, of imposing a levy on ships passing through the Strait of Malacca, describing it as a possible way that the country could leverage its proximity to a key artery of global trade.
Speaking at an infrastructure symposium in Jakarta, Purbaya Yudhi Sadewa said that such an idea aligned with President Prabowo Subianto’s directive that Indonesia should play a more active role on the global economic stage, according to the Jakarta Globe.
“As the president has instructed, Indonesia is not a peripheral country,” the finance minister reportedly said. “We sit on a strategic global trade and energy route, yet ships pass through the Malacca Strait without being charged. I’m not sure whether that’s right or wrong.”
The Malacca Strait, which is bordered by peninsular Malaysia, Singapore, and Indonesia’s Sumatra island, is the shortest route between the Indian and Pacific oceans, and hence, one of the busiest trade routes in the world. Last year, the number of transits through the Strait, which is just 2.8 kilometers wide at its narrowest point, topped 100,000 for the first time.
Unsurprisingly, Purbaya said the idea to impose a levy on Malacca arose in the context of Iran’s plan to charge ships passing through the Strait of Hormuz, which has been largely closed since the beginning of the Iran war on February 28. Hormuz is a crucial conduit of the global energy trade, handling about a quarter of the world’s seaborne oil shipments – and the negative impacts of its closure have since ramified across the globe, particularly in Asia, which is heavily dependent on imports of Gulf oil.
The minister said that a similar approach in the Malacca Straits, one of the world’s busiest maritime chokepoints, could generate significant economic value, but would have to be implemented cooperatively among the three states bordering the Strait. “If we split it three ways – Indonesia, Malaysia, and Singapore – it could be quite substantial,” he said, noting that Indonesia’s stretch of the Strait was “the largest and the longest.”
According to the Jakarta Globe, Purbaya acknowledged that the proposal is unlikely to be implemented anytime soon, given the complexity of securing agreement with Singapore and Kuala Lumpur and potential resistance from the global shipping industry.
It is unclear just how serious Purbaya was being. One report suggested that he made the remarks in jest, and Indonesian ministers have a long track record of veering off script on important issues. If he wasn’t merely being facetious, it is possible he was thinking aloud or floating the idea purposefully in order to gauge regional and global reactions. Needless to say, any such proposal would likely face strong opposition across the globe, including from Asian nations like China, Japan, and South Korea whose economies are particularly reliant on free passage through the Strait.
As with Hormuz, charging tolls for ships transiting the Malacca Strait would breach the principle of freedom of peaceful navigation on which the current international trading order is premised. The United Nations Convention on the Law of the Sea (UNCLOS), to which Indonesia is a signatory, guarantees the right of transit passage through all international straits, including both Hormuz and Malacca.
“There is no international agreement where tolls can be introduced for transiting international straits,” a spokesperson for the U.N.’s International Maritime Organisation (IMO) said earlier this month, in reference to Iran’s plan to charge ships passing through the Strait of Hormuz. The spokesperson added that Tehran’s decision would “set a dangerous precedent.” The Indonesian finance minister’s trial balloon (if that’s what it was) appears to validate the IMO’s fear.
The idea of a Malacca toll has already been dismissed without qualification by Singapore, which has on several occasions declared that passage through the Strait of Malacca must remain free for all. “The right of transit passage is guaranteed for everyone,” Foreign Minister Vivian Balakrishnan said in an interview at a recent CNBC event in Singapore, as per Bloomberg. “We will not participate in any attempts to close or interdict or to impose tolls in our neighborhood.” He added that Singapore had conveyed this message to both Beijing and Washington.
Balakrishnan has also previously ruled out negotiating with Iran over payments for ships passing the Strait of Hormuz, saying that “freedom of navigation is a right, and not a privilege.”
Whether or not Purbaya was serious, the fact that a minister of the world’s fourth-most populist country is even willing to suggest the idea of charging a toll at the Malacca Strait is an example of how the erosion of an international norm can quickly cascade throughout the international system. Iran’s decision to close the Strait of Hormuz, albeit arguably a rational and foreseeable response to the surprise attacks by the United States and Israel, has now called into question fundamental principles of free and open navigation. Should it become permanent, as Tehran purportedly intends, it could have potentially far-reaching implications for the future of global trade.
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Indonesia’s finance minister yesterday raised the idea, albeit half-jokingly, of imposing a levy on ships passing through the Strait of Malacca, describing it as a possible way that the country could leverage its proximity to a key artery of global trade.
Speaking at an infrastructure symposium in Jakarta, Purbaya Yudhi Sadewa said that such an idea aligned with President Prabowo Subianto’s directive that Indonesia should play a more active role on the global economic stage, according to the Jakarta Globe.
“As the president has instructed, Indonesia is not a peripheral country,” the finance minister reportedly said. “We sit on a strategic global trade and energy route, yet ships pass through the Malacca Strait without being charged. I’m not sure whether that’s right or wrong.”
The Malacca Strait, which is bordered by peninsular Malaysia, Singapore, and Indonesia’s Sumatra island, is the shortest route between the Indian and Pacific oceans, and hence, one of the busiest trade routes in the world. Last year, the number of transits through the Strait, which is just 2.8 kilometers wide at its narrowest point, topped 100,000 for the first time.
Unsurprisingly, Purbaya said the idea to impose a levy on Malacca arose in the context of Iran’s plan to charge ships passing through the Strait of Hormuz, which has been largely closed since the beginning of the Iran war on February 28. Hormuz is a crucial conduit of the global energy trade, handling about a quarter of the world’s seaborne oil shipments – and the negative impacts of its closure have since ramified across the globe, particularly in Asia, which is heavily dependent on imports of Gulf oil.
The minister said that a similar approach in the Malacca Straits, one of the world’s busiest maritime chokepoints, could generate significant economic value, but would have to be implemented cooperatively among the three states bordering the Strait. “If we split it three ways – Indonesia, Malaysia, and Singapore – it could be quite substantial,” he said, noting that Indonesia’s stretch of the Strait was “the largest and the longest.”
According to the Jakarta Globe, Purbaya acknowledged that the proposal is unlikely to be implemented anytime soon, given the complexity of securing agreement with Singapore and Kuala Lumpur and potential resistance from the global shipping industry.
It is unclear just how serious Purbaya was being. One report suggested that he made the remarks in jest, and Indonesian ministers have a long track record of veering off script on important issues. If he wasn’t merely being facetious, it is possible he was thinking aloud or floating the idea purposefully in order to gauge regional and global reactions. Needless to say, any such proposal would likely face strong opposition across the globe, including from Asian nations like China, Japan, and South Korea whose economies are particularly reliant on free passage through the Strait.
As with Hormuz, charging tolls for ships transiting the Malacca Strait would breach the principle of freedom of peaceful navigation on which the current international trading order is premised. The United Nations Convention on the Law of the Sea (UNCLOS), to which Indonesia is a signatory, guarantees the right of transit passage through all international straits, including both Hormuz and Malacca.
“There is no international agreement where tolls can be introduced for transiting international straits,” a spokesperson for the U.N.’s International Maritime Organisation (IMO) said earlier this month, in reference to Iran’s plan to charge ships passing through the Strait of Hormuz. The spokesperson added that Tehran’s decision would “set a dangerous precedent.” The Indonesian finance minister’s trial balloon (if that’s what it was) appears to validate the IMO’s fear.
The idea of a Malacca toll has already been dismissed without qualification by Singapore, which has on several occasions declared that passage through the Strait of Malacca must remain free for all. “The right of transit passage is guaranteed for everyone,” Foreign Minister Vivian Balakrishnan said in an interview at a recent CNBC event in Singapore, as per Bloomberg. “We will not participate in any attempts to close or interdict or to impose tolls in our neighborhood.” He added that Singapore had conveyed this message to both Beijing and Washington.
Balakrishnan has also previously ruled out negotiating with Iran over payments for ships passing the Strait of Hormuz, saying that “freedom of navigation is a right, and not a privilege.”
Whether or not Purbaya was serious, the fact that a minister of the world’s fourth-most populist country is even willing to suggest the idea of charging a toll at the Malacca Strait is an example of how the erosion of an international norm can quickly cascade throughout the international system. Iran’s decision to close the Strait of Hormuz, albeit arguably a rational and foreseeable response to the surprise attacks by the United States and Israel, has now called into question fundamental principles of free and open navigation. Should it become permanent, as Tehran purportedly intends, it could have potentially far-reaching implications for the future of global trade.
Sebastian Strangio is Southeast Asia editor at The Diplomat.