SINGAPORE: The United States and Iran announced on Sunday (Jun 14) a preliminary agreement aimed at ending their war and reopening the Strait of Hormuz.
The war, which started on Feb 28 with the US and its ally Israel attacking Iran, has killed thousands of people, while global energy prices skyrocketed after Tehran effectively blockaded the Strait of Hormuz in retaliation.
The US responded by blockading ship traffic to Iranian ports.
Previous attempts at a deal had fallen through, and during negotiations, the warring parties had released conflicting information about the contents of the agreement, as each sought to portray itself as emerging from the war with the upper hand.
Though the memorandum of understanding is scheduled to be officially signed on Friday in Switzerland, the precise terms of the deal remain unclear.
Iran’s deputy foreign minister, Kazem Gharibabadi, said a more expansive agreement would be negotiated after the memorandum of understanding is signed. It would trigger a 60-day period during which the US and Iran are expected to negotiate the fate of Tehran’s nuclear programme and stockpile of enriched uranium.
CNA takes a look at what the deal might contain.
Reopening the Strait of Hormuz
The closure of the Strait of Hormuz, a critical artery for oil and gas, has disrupted world energy supplies and driven up fuel prices.
US President Donald Trump said that the strait would reopen on Friday, and that he had ordered the end of a US blockade of Iranian ports. Iran’s Gharibabadi confirmed the agreement on state TV.
The US had previously said that Strait of Hormuz should reopen “toll free”. However, Iran wants a deal under which the waterway would be reopened under its terms, with Tehran charging ships when they transit the strait despite it being considered international waters.
Iran has charged ships for passage during the war, something other countries deem to be a violation of international law.
It is also unclear who would handle the demining of the straits, though a US official has indicated that the G7 countries could have a role in this.
Even with a deal, it will take months for oil and gas supplies to flow freely enough for the world’s needs to be met because shipping and insurance companies want to be confident the agreement will last, energy experts said.
“The lack of details, especially on freedom of shipping, is a concern but not one that should constrain markets today as the surge in risk appetite plays out,” said Sean Callow, a senior FX analyst at ITC Markets.
Stephen Innes of SPI Asset Management said in a report that “the reopening of Hormuz is a relief valve, not a full peace dividend. The market can remove some crude panic, but it still has to price the gap between a headline, a signature, and a regime that actually complies.”
