US and Iran Say They’ve Agreed Deal to Reopen Hormuz This Week
The US and Iran said they reached an interim peace agreement to reopen the Strait of Hormuz and move further toward ending a war that’s killed thousands of people across the Middle East.
The development caused equities and bonds to jump at the start of the trading week, while oil and natural gas prices — which soared with the strait’s closure — slumped.
US President Donald Trump, under pressure as rising fuel costs hit him and his Republican Party ahead of midterm elections in November, hailed it as a “great deal that will bring peace and security to the whole region.” He pushed Iran for the agreement to be announced on Sunday, this 80th birthday.
Read more: Shipowners Seek Clarity on Hormuz Deal as Waiting Flotillas Grow
Yet for all the relief in markets and among Middle Eastern states that got caught up in the conflict, Washington and Tehran still need to decide on the final steps related to what they’re calling a memorandum, set to be signed in Switzerland on Friday. Neither side has released a text.
Israel, which started the war alongside the US by bombing Iran, isn’t in favor of the agreement.
Qatar, the main mediator along with Pakistan, will host US and Iranian delegations this week to hammer out the details of the signing and plan for a new round of negotiations over Iran’s nuclear program, according to several people familiar with the matter.
The 14-point plan should see the US and Iran extend their ceasefire agreed to on April 8 by two months, and begin the new negotiations about restricting Tehran’s enrichment of uranium for around 15 years. They can extend the truce further if they can’t reach a so-called “final agreement” in that timeframe, which many analysts expect will be the case given how complex and technical the discussions will need to be.
Immediately once the MOU is signed, Iran is meant to reopen the Hormuz strait and the US to lift its blockade of Iranian ports.
Several sticking points have caused the talks to drag on, with the sides continuing to exchange fire and the ceasefire close to breaking down over the past week. The points of contention have included whether the US will agree to unfreeze tens of billions of dollars of frozen Iranian funds held in places such as Qatar, and whether Tehran will relinquish its stockpiles of high-enriched uranium.
Israel has not been directly involved in the negotiations and there’s consternation in the country that the deal concedes too much to the Islamic Republic without curbing its development of ballistic missiles. Israelis also fear the accord will force Prime Minister Benjamin Netanyahu’s government to ease its operations against the Iran-backed Hezbollah militant group in Lebanon.
Trump told Axios Israeli strikes on Lebanon’s capital of Beirut around midday on Sunday — a response to Hezbollah firing projectiles into northern Israel — had delayed the signing. He claimed he swore at Netanyahu in a call soon after, telling the Israeli leader he had “no judgment” and had almost scuppered the deal.
Israel insists it won’t be curtailed in fighting Hezbollah and stopping it launching attacks on its territory.
Oil traders will watch closely on Friday whether the signing actually leads to ships having free passage through Hormuz, which Iran effectively closed by firing on vessels when the war erupted on Feb. 28.
The interim deal specifies Iran will allow vessels to transit free of charge for only 60 days, Fars news agency reported, citing a person familiar with the accord. Iran plans to generate revenue by charging for safety, navigation, environmental and insurance services after the 60-day period, according to the Fars story.
Gulf states such as Saudi Arabia and the United Arab Emirates, as well as Western nations, have balked at the idea of Iran charging any fees for what most of the world views as international waters.
The MOU may refer to the chokepoint — through which one fifth of the world’s oil and liquefied natural gas supplies normally flow — needing to be demined as a first step. The UK and France are set to lead a multilateral mine-clearing mission if it’s needed.
Oil prices fell more than 5% on Monday. Brent futures traded below $83 a barrel, down from a high of around $125 in late April. Since then traders have became more convinced there would be a deal rather than a reversion to all out war.
Oil is still up more than 35% since the start of the year and the US and other Western nations will need to rebuild their emergency stockpiles once the strait is open, having drawn them down at a record pace to try to cap prices.
US government bond yields also dropped, with investors optimistic the waterway’s opening will ease global inflationary pressures and perhaps ease pressure on the Federal Reserve to raise interest rates.
Nearly 600 vessels are still stuck in the Persian Gulf awaiting departure through the strait, while hundreds more are waiting on the other side, according to data intelligence firm Kpler.
The announcement of an agreement came first from Pakistani Prime Minister Shehbaz Sharif, and was followed by Trump and Iranian state media.
Iran depicted the deal as a capitulation by the US.
“The Islamic Republic of Iran succeeded in thwarting the enemy in achieving its strategic goals,” Deputy Foreign Minister Kazem Gharibabadi said. “The enemy was ultimately defeated and forced to request a ceasefire and negotiations. Now, all of Iran’s main positions and demands have been taken into account in the text of the understanding.”
Even as he celebrated the deal, Trump told the New York Times if an agreement on Iran’s nuclear program isn’t reached, he could restart military attacks.
Both sides were already casting the deal in different lights minutes after it was announced — underscoring how difficult it may be to resolve the outstanding issues. Iran said ships passing through the strait would be regulated by Iran and Oman, suggesting Tehran would seek to retain some control over the waterway.
Iran said during the 60 days of negotiations it would seek “the removal of all primary and secondary sanctions.” Any such move may require approval from the US Congress, which imposed some of the most punishing sanctions. It would likely provoke an outcry from Iran hawks who worry Trump will give up leverage over a country that’s been seen as an enemy of Washington since just after its Islamic revolution in 1979.
A senior US official who spoke to reporters on Friday said Iran would earn economic rewards each time it met a set of demands. The White House has stressed Iran won’t get any money on the signing of the MOU.
The US and Iran remain deeply distrustful of each other, and grave questions persist about their ability to reach a broader accord.
Photograph: Ships anchored in the Strait of Hormuz near Larak Island, Iran; photo credit: Majid Saeedi/Getty Images Europe