Indonesia’s toll remarks for Malacca Strait draws attention to choke point risks

Indonesia's Finance Minister has floated the idea of imposing a levy on ships transiting the Strait of Malacca, following Singapore Deputy Prime Minister's statement on ships' unconditional transit rights through international straits April 21.

Finance Minister Purbaya Sadewa said April 22 at a symposium in Jakarta: "As the President said, Indonesia is not a peripheral country. We are on a strategic global trade and energy route. Yet ships passing through our straits are not charged. I'm not sure whether that's right or wrong. Now Iran is reportedly charging ships passing through the Strait of Hormuz."

"If it were split among three: Indonesia, Malaysia, and Singapore, it would be quite substantial, right? Our route is the longest and most extensive. Singapore is small, and Malaysia could be split with us. If only it could be like that, but it isn't."

Indonesia needs to be "more offensive" with all its resources and "not think defensively," he said, highlighting that it would allow the country to create faster growth while maintaining fiscal discipline.

Fiscal concerns

"Inflation remains under control. Keeping the state budget deficit at 3% of GDP means our economic fundamentals are still strong. We're being frugal, yet with a 3% deficit, growth can still reach 5%. At that level, we can grow above 5%, moving toward 5.5%-6%," said Sadewa at the event.

His remarks followed Bank Indonesia's decision to hold its policy rate unchanged at 4.75% for the seventh consecutive month during its April meeting, as the central bank emphasized the need to preserve rupiah stability amid heightened global uncertainty.

"More fundamentally, BI widened its current account deficit forecast for 2026 to 0.5%-1.3% of GDP, from 0.1%-0.9% at the March 17 meeting," said OCBC Group Research in a note April 22, adding that the adjustment underscores "ongoing external vulnerabilities, particularly in the context of elevated global energy prices."

Coupled with a 3% GDP state budget deficit, the "twin deficit" pressures on the current account and the fiscal side "continue to exacerbate external vulnerabilities" in Indonesia as the fiscal deficit until March reached about 35% of the annual deficit, the OCBC note said.

Iran has proposed charging ships for transit through the Strait of Hormuz as part of broader postwar arrangements. Based on S&P Global Commodities at Sea data, total ship transit count through Hormuz stood at 218 in March compared with 3,783 in February.

Transit rights

Singapore has reinforced its stance of upholding ships' transit rights through international straits.

Deputy Prime Minister Gan Kim Yong said at the Singapore Maritime Week April 21 that UNCLOS "clearly stipulates the right of transit passage for all ships and aircraft through straits used for international navigation," and that Singapore could not negotiate away passage rights even when facing real commercial and safety pressures around Hormuz.

Regarding the Strait of Malacca, which handles one-third of global seaborne oil trade, he said Singapore, Malaysia and Indonesia have a cooperative framework to keep the waterway operating smoothly and to ensure safe passage, framing the straits as a "shared responsibility" rather than a revenue opportunity.

Foreign Minister Vivian Balakrishnan made similar comments in an April 7 parliamentary reply, saying transits through the Strait of Hormuz, just like the Straits of Malacca, fall under a clear legal regime in which "there is a right of transit passage."

He added that this right "is not a privilege to be granted by the bordering state," "is not a toll to be paid," and cannot be suspended even for security, environmental or wartime reasons under Article 44 of UNCLOS.

Malacca vulnerabilities

Balakrishnan emphasized that Singapore's legal position on Hormuz was shaped in part by the stakes much closer to home, noting that the narrowest point in the Southeast Asian waterway is less than two nautical miles wide, compared with 21 nautical miles at Hormuz. He said this geography is the reason why Singapore must take a "categorical position" that transit passage is a right, not a privilege.

Analysts have flagged that the congested route through the Strait of Malacca linking the Indian and Pacific Oceans is especially subject to disruptions.

"Alternatives are sparse: the narrow, shallow Sunda Strait is unsuitable for large tankers, while the Lombok-Makassar route adds roughly eight days per round trip -- effectively removing around one-sixth of global tanker capacity. This would tighten global oil and LNG markets and drive significant price spikes," wrote think tank E3G in a March report.

"The countries most exposed would be those most dependent on uninterrupted flows through Malacca and adjacent sea lanes." Japan and South Korea would take the hardest hit if the Malacca pathway were to be disrupted, while "many developing countries would be priced out entirely," according to the report.