Hormuz keeps the US and Iran stuck in a vortex of retaliatory attacks

The interim agreement between the United States and Iran to reopen the Strait of Hormuz and extend the ceasefire was supposed to allow unhindered passage of ships and the flow of oil, but three and a half weeks later, navigation through this key energy corridor is messy, fragile and with frequent delays, writes the Financial Times.

After announcing last month that the strait would be opened “toll-free,” US President Donald Trump told “the ships of the world” to “start their engines,” with the message: “Let the oil flow.” Yet the vital waterway remains a major point of contention.

After the latest exchange of blows between the US and Iran, Trump said he believed their fragile ceasefire was "over," but later said he did not think a full-scale war with Iran would break out.

"I don't think it's going to start again. I think it's going to end very quickly. They hit a couple of ships, so we hit them a lot harder," Trump told reporters in Ankara after the NATO summit.

"Whatever happens, it will be over very quickly... and it will only make things safer, including for oil," he said.

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Mediators are trying to keep the diplomatic process on track, a person familiar with the matter told the FT. But their task is increasingly complicated by two opposing forces: Trump’s push to move ships through the strait as quickly as possible to ease an energy crisis ahead of the US midterm elections, and Iran’s resistance to any weakening of its control over the waterway.

This has locked the warring parties into a persistent cycle of mutual attacks. Every time Iran targets ships that are not using the routes it wants, the US retaliates with strikes on the Islamic Republic, and Tehran retaliates.

Previously, such clashes were limited, but they are constantly undermining the fragile ceasefire of April 8, the interim agreement signed on June 17 and diplomatic efforts to mediate a lasting solution, the FT said.

Control of the Strait of Hormuz - which Iran never closed before the US and Israel launched a war on February 28 - has become a "golden weapon" for Tehran, for which it is willing to risk a new escalation with the US, and a higher priority than its nuclear program, for which it has suffered sanctions for decades, Reuters estimates.

Iran's top negotiator, Parliament Speaker Mohammad Bagher Ghalibaf, accused the US yesterday of violating the ceasefire agreement. "The era of intimidation and extortion is over," Ghalibaf wrote on X. "We will not give in."

Control of the Strait of Hormuz has become a "golden weapon" for Tehran, for which it is willing to risk a new escalation with the US, and a higher priority than its nuclear program, for which it has suffered sanctions for decades.

Tehran is now reluctant to give up the key card it holds in negotiations that should be aimed at a final solution.

“Iran is unwilling to give up its influence over the strait, its weapon of mass disruption, before a broader deal is reached on US economic relief,” Eli Geranmayeh of the European Council on Foreign Relations told the FT. “For Trump, reopening the strait is at the heart of the memorandum of understanding – and without it he will be under enormous pressure from Republican hawks to renew war with Iran.”

She added: “The two sides should have agreed on a mutually acceptable protocol for the strait before signing the memorandum of understanding.

The longer the absence of such an agreement lasts, the strait remains blocked, and the likelihood that Washington and Tehran will return to war increases.

Under a memorandum of understanding signed last month, Tehran agreed to allow ships to pass through the strait without tolls during a 60-day extension of the ceasefire from April 8.

In return, the US would lift its naval blockade of Iranian ports. Iran would remove mines from the strait within 30 days, and traffic would gradually return to pre-war levels.

As a financial incentive, the US has granted Tehran a waiver that allows it to sell its crude oil and oil-related products in dollars.

But Tehran has said it will impose fees in the future. The fragile agreement was quickly put to the test, as Tehran insisted that ships use a route close to its coast, where it can monitor traffic through a waterway that carried about a fifth of the world's oil and liquefied natural gas before the war.

The US, however, has been encouraging vessels to pass close to the coast of Oman, whose territorial waters run through the waterway. This has allowed US warplanes to provide air cover for the ships since late May.

The emergence of the alternative route frustrated Tehran because it reduced its control, said a diplomat familiar with the matter.

Those tensions came to the fore a few days after US Vice President J.D. Vance led a delegation to Switzerland on June 21 for the first round of high-level talks on a final settlement, including an agreement on the Islamic Republic's nuclear program.

The parties agreed to establish a direct line to avoid incidents in the strait, prevent misunderstandings, and coordinate navigation while mines are being removed.

But Iran fired on one of the ships a few days later, warning vessels not to use what it called unauthorized routes, which, according to the FT, set off a cycle of retaliatory attacks. The warring parties then held days of talks in Qatar, one of the main mediators, last week.

Those talks focused on the strait, as disputes over the waterway were distracting from already demanding diplomatic efforts to make progress on the nuclear deal within the framework of a 60-day ceasefire extension.

Brokers believed they had made cautious progress. But then the latest attacks struck, further unnerving an already nervous shipping industry. Even before that, shipping companies had warned that it would take time to restore confidence and lower insurance premiums.

The latest attacks have heightened concerns about safety and security, with shipping traffic data showing at least four oil and gas tankers turning back rather than attempting to pass through the vital supply route, Reuters reported.

Brent crude futures jumped more than five percent yesterday, the most in a single day since late May, to $78,48 a barrel.

While that is well below the $120s seen at the height of the fighting, it is enough to introduce new inflationary risk into the bond market, especially as months of conflict have depleted global oil supplies.

The US-Iran talks were expected to resume on July 12, after the multi-day funeral of slain Iranian Supreme Leader Ayatollah Ali Khamenei, which is taking place this week, concludes.

However, it was unclear whether they would now resume. Trump said on Wednesday that negotiators "can talk, but I think they're wasting their time."