Strait and narrowing: the Iran deal crumbles
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Why has the Iran‑Hormuz deal collapsed and what does it mean for global oil?
The Economist. Hello and welcome to the intelligence from The Economist. I'm Jason Palmer.
Today on the show, why India's government can't build a decent website and summer camps but for grown-ups.
First up though.
Here we are again. Missiles are flying over and out of Iran. That long awaited deal of a month ago to end the war is now in tatters. You know, this deal.
We reached an agreement with Iran that achieves everything we set out to accomplish, everything and much more.
Strong mission accomplished vibes, right? But again, the Strait of Hormuz is all but pinched off. And the fiery rhetoric? It's back too.
And they're a bunch of scum, you want to know that the scum And uh So we don't like 'em? I don't like him. And they're evil people.
For a hot minute there, Mr. Trump said he'd start charging a toll in the strait, but soon after walked it back.
I don't think anybody should be able to charge a fee for the strait.
That's just one hint of how constrained his options really are.
We've now had six nights of tit for tat striks. Iran started the fighting by attacking three ships in the Strait of Hormuz. Greg Carlstrom is a Middle East correspondent for The Economist. This is something less than the all out war that we saw back in March, but nonetheless it looks at least for now, like the memorandum of understanding between the two countries is dead and Donald Trump is back to using the same sort of inflammatory language he used earlier in the war.
We're gonna hit him very hard tomorrow night. We're gonna hit 'em very hard the night after, and then next week it gets really bad for them because next week comes the Uh power plants next week comes the bridges. We're gonna knock out all that power.
Donald Trump wants the Strait of Hormuz to reopen, but he has no good way to do it.
So what about that memorandum of understanding, the deal to make a lasting deal? What happened?
It was a very vaguely worded memorandum, which turns out not to be a good way to draft a diplomatic agreement. And the dispute here is around the fifth paragraph in particular, which states that Iran will make arrangements for the safe passage of commercial vessels through the strait. Now the Americans read that to mean Iran will remove the mines that they have scattered through the Strait of Hormuz and they will unlock it and allow. Ships to travel through, and that's it. But the Iranians read something more into that language. They think that also confers a right to administer traffic through the strait. So to decide which vessels can move and when. And obviously, the Americans disagree with that.
So for weeks, they have been helping to escort tankers through the southern route of Hormuz, which goes through Oman's territorial water. waters doesn't cross Iranian waters and therefore the Iranians have no say over what happens there. Iran quite unhappy with that because it thinks it erodes what it believes to be its right to control traffic.
What were the key provisions of the Iran‑US memorandum and why are they disputed?
Once again, sort of not clear whether the strait is open or not.
It depends on who you ask, right? The Iranians say that it is now shut altogether. They made that announcement a few days ago. Donald Trump continues to insist that actually the strait is open. But what's relevant here is not what the Iranians or the Americans say, it's what ship owners and insurers think. Do they believe that it's actually safe to transit through hormones? And after a string of Of Iranian attacks over the past eight or nine days, it's very clear that most ship owners do not consider the strait safe. So we've seen a significant drop in traffic. If you go back to about 10 days ago, you had 30, 40, even 50 ships transiting on some days. Whereas on July 12th, just 11 vessels transited the strait, and traffic has remained at
At that very low level ever since. So very few ships willing to use Hormuz. And consequently, we've seen oil prices start to climb from about $71 a barrel once the MOU was signed to the mid-80s. Now there's been almost a 20% increase in oil prices over the past 10 days.
I regret how much this conversation is very much like conversations we've had earlier in the year, but once again, nobody wins here.
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Chapters
6 chapters
1
Why has the Iran‑Hormuz deal collapsed and what does it mean for global oil?
0:03–3:43
2
What were the key provisions of the Iran‑US memorandum and why are they disputed?
3:43–8:01
3
How have recent Iranian attacks affected tanker traffic and oil prices?
8:01–11:52
4
What military and economic options does the United States have to reopen the strait?
11:52–15:57
5
Why are India’s government websites notoriously hard to use?
15:57–19:52
6
What structural problems keep Indian public‑sector IT from improving?
19:52–22:09