By Kristoffer Mousten Hansen

Since the ceasefire on April 8 and Trump’s apparent capitulation to Iran, it appears the Iranians will levy a toll on all oil passing through the Strait of Hormuz. The details are still unclear, but according to The Hill citing the Financial Times, the Iranian Republic will levy $1 per barrel of oil to be paid in bitcoin on all traffic out of the Persian Gulf.

The Iranian government obviously benefits from this, but who actually pays the toll? This question, what is known as tax incidence, is one important point of difference between the Austrian school and mainstream economics that remains widely overlooked, and the Hormuz toll is a good opportunity to highlight this difference and the Austrian, especially Rothbardian, approach to tax incidence. It is also an interesting political and economic question in its own right.

The Hormuz toll imposed by the Iranians is paid immediately by the owners of the ships and cargoes of oil passing through. By the time of the ceasefire, there were about 2,000 vessels stuck in the Persian Gulf, but by no means all were oil tankers. For these cargoes, there can be no question of shifting the incidence of the toll. It is simply a total loss to them. However, now that the toll is established, it becomes effectively a calculable cost to the shippers of oil. Then the question emerges: can the businessmen who immediately pay the toll shift it to someone else and make them bear its burden? Here the laws of economics come into play. According to Rothbard’s first law of incidence, “no tax can be shifted forward.” That is, the person or company paying the tax cannot make the buyer of his product, and ultimately the final consumer bear its burden by raising his price. The price is set by demand and supply, and demand does not shift simply because a tax is imposed. In the short run, the stock in existence of the good is the relevant supply and the owner is willing to sell at any price. As we learn from total demand and stock analysis, only if the owner of the good exercises reservation demand, that is, if he has some alternative use for the good or if he speculates that the price (or in........

© Eurasia Review