Can diplomatic talks between the United States and Iran reopen the Strait of Hormuz?
There has been new advances in talks between the United States and Iran while the Strait of Hormuz remains blocked. Let's look at the war, the oil prices, the shipping risks, the diplomatic relations between Qatar and Oman, and what happens next.
Raja Awais Ali
8/5/20267 min read
Can diplomatic talks between the US and Iran reopen the Strait of Hormuz?
The United States and Iran seem to be heading towards a possible diplomatic breakthrough following months of war, although significant disagreements still exist concerning the Strait of Hormuz, Iran's nuclear programme, regional security and the future of the conflict. U.S. President Donald Trump stated that the two parties had undertaken all-day talks on Tuesday and called the negotiations "very good". He also added that the negotiations were progressing well and forecast that the Strait of Hormuz might reopen very soon. At the same time, he warned that Iran would receive a strong military response if it withdrew from an agreement once again. These conflicting messages demonstrate how uncertain the situation still is: while diplomacy is making progress, the risk of renewed hostilities has not vanished.
The Strait of Hormuz has become the main point of discussion since it is one of the most important routes in the world for energy transport. Prior to the war, about 20% of the world's oil and liquefied natural gas shipments usually went through the strait. During the conflict Iran has stopped most traffic from using the strait, while Washington has kept in place a blockade concerning shipping and ports related to Iran. An agreement that enables normal shipping to resume could alleviate pressure on global energy markets and reduce concerns about a broader supply crisis. Which is the reason why financial markets reacted promptly to any signs of progress in the talks between Washington and Tehran. On Tuesday oil prices dropped sharply and Wall Street reached record highs as investors hoped that a deal might soon allow shipping to be restored along the major waterway.
Iran's stance is still unlike that which Washington gives of the negotiations. The Iranian government has stated that formal peace talks with the United States are not going on. Esmaeil Baghaei, spokesperson for the Iranian Foreign Ministry, said that discussions with Oman concerning transit through the Strait of Hormuz are positive and have still been going on. The Iranian state media report that the aim of the discussions is to establish safe shipping routes while at the same time safeguarding the sovereignty and national security of both Iran and Oman. This indicates that the immediate diplomatic objective might not be a full peace agreement, but rather a practical arrangement which would allow commercial shipping to pass safely through the strait.
Oman is important since it holds territory on the other side of the Strait of Hormuz. Iran has for a long time maintained that it should be given a share of the responsibility for the strait with Oman. Last week Tehran turned down an Omani suggestion which called for shared supervision and voluntary fees from ships. The resumption of talks therefore goes beyond merely reopening the shipping route; it also raises issues concerning control, security, sovereignty and who will be in charge of the strait after the conflict.
The United States also has a tough question to deal with concerning the wider aims of the war. When Trump started the conflict his main objectives had been to dismantle Iran's nuclear programme, reduce its capacity to launch attacks on its regional rivals and set the stage for political changes within Iran. An agreement that allowed the Strait of Hormuz to be reopened would be a significant step in reducing immediate tensions, but it would not automatically imply that Washington had achieved all of those wider objectives. That is the reason why the present diplomatic efforts should be seen as a possible turning point and not as evidence that a final peace agreement is already in place.
Qatar is also taking part in the diplomatic initiative. The country had previously stated that the mediators were making progress in their attempts to end the conflict, even though Tehran had denied that formal talks were taking place. On Tuesday Trump had a telephone conversation with Qatar's Emir Sheikh Tamim bin Hamad Al Thani regarding efforts to reduce the differences between Washington and Tehran and to enhance the prospects of a lasting settlement. The fact that both Qatar and Oman are involved shows that the Gulf states are becoming important channels for communication as they attempt to prevent the conflict from spreading any further throughout the region.
Even though diplomatic expectations have grown, a fresh attack in the Red Sea has served to remind investors that the broader conflict is still dangerous. The Iran-aligned Houthi rebels in Yemen stated that they carried out a missile strike on a Saudi oil tanker close to Yanbu, a key Saudi port used for exporting crude oil. Saudi authorities had not given an immediate response to the assertion. The attack in question had undermined investors' confidence in the idea that the regional conflict would soon be de-escalating. It also brought to light a significant issue for any peace initiative: even if an agreement is reached between Washington and Tehran, other armed groups and the various regional fronts could still pose a threat to shipping.
The oil market responded right away. Brent crude climbed by $1.51, representing a 1.9 per cent increase, to $80.87 per barrel, while U.S. West Texas Intermediate crude rose by 90 cents, or 1.19 per cent, to $76.67. This increase followed just one day after oil prices had dropped sharply; on Tuesday Brent had fallen by about 5 per cent and had closed below $80 a barrel for the first time since July 13 following Qatar's report on progress made in its efforts to end the war. The swift shift in prices demonstrates how closely the energymarkets are watching developments concerning Iran, the Strait of Hormuz and the Red Sea.
The overall situation regarding supply is still uncertain. Previously, about one-fifth of the world's oil and liquefied natural gas passed through the Strait of Hormuz, so any long-term disruption could have an impact on global fuel prices, shipping costs and inflation. It has also been noted by analysts that one of the main problems preventing a rapid agreement is Iran's desire for a certain degree of control over the strait. As for Washington, it has made it clear that it is not willing to accept an arrangement which leads to the result that Tehran has rejected.
The conflict has already resulted in serious losses for both commercial shipping and military forces. According to the International Maritime Organization, there have been at least 17 deaths among seafarers in 64 incidents in the Strait of Hormuz since the war started on February 28. The Iranian government has stated that 50 people were killed and 500 injured as a result of U.S. strikes since the hostilities were renewed in late June; it later added that a U.S. strike on Qeshm in late July killed a husband, his wife and their two-year-old son. Iran has reported more than 3,400 deaths since the United States and Israel began the war on February 28, while the United States has reported 18 of its military personnel killed. These figures come from the parties concerned and have not been independently verified in all cases, but they do show the extent of the human cost caused by the conflict.
The situation has also had an impact on shipping routes outside the Persian Gulf. The attacks by the Houthi movement have increased pressure on the Red Sea route, thus presenting another difficulty for oil exports in the region and for international trade. At one instance close to Yemen, a projectile hit an ship flying the Indian flag, causing it to capsize and sink. Indian authorities stated that all 14 of the seafarers on board had been rescued. This incident illustrates the fact that the conflict has introduced risks along several of the major maritime routes at the same time. The Strait of Hormuz is still the greatest concern regarding energy supplies, while the Red Sea has also become a major hazard for ships travelling between the Middle East, Asia and Europe.
The United States is at the same time keeping a close eye on its own energy stocks as the conflict persists. According to data from the American Petroleum Institute, U.S. crude inventories rose by approximately 2.7 million barrels during the week that ended July 31, whereas distillate stocks fell. Moreover, China has also relaxed its controls on the export of fuel in August, which could thus add another element to the global supply situation. While these developments might help to alleviate some of the pressure on international markets, they cannot entirely eliminate the risks resulting from the conflict and the shipping disruptions.
It can therefore be seen as a possible diplomatic turning point rather than as a definite end to the war; Trump states that productive talks have taken place between the United States and Iran and that the Strait of Hormuz may soon reopen. Yet Iran keeps denying that formal peace negotiations are going on, even as it confirms that it is having positive discussions with Oman regarding safe shipping routes. Qatar is attempting to reduce the differences between Washington and Tehran, while attacks connected with the broader regional conflict still pose a threat to maritime security.
The major challenge at the moment is whether the two parties will be able to turn their limited advances into a real agreement. Opening the Strait of Hormuz would be a quick and significant move since it could reinstate shipping, lessen the strain on oil markets and reduce the risk of a broader energy crisis. However, a permanent solution would demand much more. Washington and Tehran would have to deal with the nuclear issue, regional attacks, shipping security, control of the waterway and the overall political outlook of the conflict. Should diplomacy succeed, global energy markets and shipping would benefit considerably. But if the talks fail or if new attacks spread throughout the Gulf and the Red Sea, oil prices could go up once again and pressure on global trade could grow.
At the moment, the most important question isn't just whether the United States and Iran are in talks. The real issue is whether those talks can lead to an agreement that reopens the Strait of Hormuz and puts an end to the five-month conflict. The following phase of diplomatic efforts will show whether the current optimism turns into a real route to peace or merely amounts to a temporary setback before tensions increase again.
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