At a somewhat faster pace than could have been feared last week, the Trump Administration and Iran appear to have reached a deal to extend the ceasefire, reopen the Strait of Hormuz, and commence new negotiations on Iran’s nuclear program. Unlike previous declared breakthroughs, both sides this time have announced the deal with a “signing ceremony” planned for this coming Friday in Switzerland. While the details of the deal remain unknown, and several leaked versions have been reported in the media, the broad scope of this “shallow deal” can also be gleaned from the public discussion of its content by President Trump and not least Israeli leaders.
The deal looks likely to reopen the Strait of Hormuz, end the U.S. blockade of Iran, and provide some sanctions relief and asset unfreezing for Iran, and start a 60-day intense negotiation about the future restrictions on Iran’s nuclear program. Much remains to be discovered about this deal, but it is already clear that it achieves essentially none of President Trump’s pre-war goals, represents a strategic debacle for Israel, while placing Iran in a strategically stronger position.
In the end, the economic and political necessity of bringing his election year war of choice to a close appears to have forced President Trump’s hand in getting to this objectively “bad deal”. The United States and by extension Israel will now have lost credible military deterrence of Iran going forward, as Tehran has shown its capacity to withstand the full extent of Coalition military pressure on it (it will likely never be politically credible that the U.S. mass forces for a land invasion of Iran).
This makes the details of the new agreement very important, as it will matter greatly precisely when Iran is granted sanctions relief, or when and how many Iranian financial assets will be unfrozen. Economic pressure now remains President Trump’s most potent lever on Iran, but there can be little doubt that Iran comes out of the conflict in a potentially financially stronger medium-term position.
The apparent complete lack of coverage in the deal of Iran’s ballistic missile and drone programs, and its support for regional proxy forces around the Middle East represents a further strategic gain for Iran. The singular longer-term focus on Iran’s nuclear program mirrors the narrow focus of the earlier JPCOA agreement, abandoned by Donald Trump in 2018, a feat he and his Republican allies are not likely to repeat in the future with his own new deal.
Provided a negotiated solution can be found to the post-2018 problem of Iran’s stockpile of highly enriched uranium, this new deal will merely bring some new forward restraints on Iran’s enrichment program. But since it will not erase Iran’s nuclear knowledge gained since 2018, its operational expertise in producing and running centrifuges etc., this deal will fail to restore the nuclear status quo ante in place during the JPCOA.
Of potentially significant oil market importance is the reported agreement by Iran to immediately reopen the Strait without any tolls for the duration of the 60-day negotiation period. Assuming verifiable mine clearing operations can quickly be implemented (the G-7 leaders may have something to say shortly), this should set up the Strait for a fairly quick normalization of traffic, as it returns to the status quo ante circumstances.
This importantly is likely to set a high threshold for Iran to at the end of the 60day period move to – at Tehran’s initiative – again close a crucial economic lifeline for much of the rest of the world. This will be true, even in the event of no agreement on Iran’s nuclear program within the 60day period. Iran has proven its capacity to close the Strait as well as fire indiscriminately but often accurately at targets across the Gulf Region, but the threshold for it to do so as the aggressor remains high.
It will almost certainly only come about in the form of retaliation against renewed significant U.S. or Israeli military strikes against core regime leaders or energy infrastructure, or a reimposed U.S. naval blockade against Iran. Otherwise, once the Strait is reopened Iran is likely – as in recent weeks – to retaliate against U.S. military targets or directly against Israel. Given the clearly revealed preference of Donald Trump to avoid a return to all-out war, the base case therefore is that the Strait of Hormuz now remains open on terms comparable to the pre-war situation.
It is not likely that Oman will agree to a new joint “Strait management operation” that will extract any meaningful mandatory financial costs from transiting shipping. It will further be the strong preference of China and the rest of the world, with which Iran (and Oman) needs to maintain tolerable economic relations as it tries to rebuild its economy after the war, that transiting the Strait of Hormuz is returned to normal as soon as possible.
The biggest unknown at this moment is the position of Israel and the importance of a ceasefire also in Lebanon for the implementation of the entire deal. It seems highly improbable that Israel will want to restrain itself in its fight against Hezbollah, given that it is also an election year in Israel and that large numbers of residents in Northern Israel is under ongoing missile threat.
The possibility of ongoing heavy fighting in Lebanon remains the biggest risk to the current deal and timetable. Elements of the Iranian regime will see that it has an opportunity to drive a wedge between a U.S. president bent on striking a deal, and Israel intent on maintaining military pressure on Hezbollah, and Tehran may therefore not put pressure on its proxy to scale back the fighting. In short, this is a terrible deal for Israel and to gauge its immediate prospects, watch Lebanon closely until Friday.
Notwithstanding the likely return of the Strait of Hormuz to its pre-war modus operandi, it seems likely that the GCC members nonetheless at risk of another closure of the Strait in the future is likely to aggressively pursue new bypasses in the form of new pipelines from the Gulf region oilfields to alternative shipping nodes in the Gulf of Oman, the Red Sea or the Mediterranean.
This will gradually further promote the oil market resilience witnessed since the war began in late February, and will, combined with rising non-Gulf region oil production and stagnating (and more likely after this most recent geopolitical shock pushes renewables falling) global demand, serve to mitigate against very dramatic increases in oil prices in case that the Strait of Hormuz is closed again by Iran in the future. There is hence some hope that this war has represented perhaps the last time the Strait of Hormuz can be weaponized for short-term effective geopolitical gain by Iran.
While Iran will hence gradually lose the ability to weaponize the Strait of Hormuz, this does not really mitigate its ability to wreak havoc across the Gulf region. With U.S. military deterrence evidently weakened and Washington’s capacity to physically protect the GCC region from Iranian attacks verifiably undermined since this war began, the region faces a more uncertain future with this deal.
Can the Gulf region’s “economic oil diversification plans” be restarted with an empowered Iran next door, and a revealed less credible protection provided by the United States? Perhaps, but at what additional fiscal costs? How much must the GCC region now invest in additional effective air defenses to try to neutralize Iran’s drone and missile threat? What additional security alliances might have to be crafted, given that normalization with Israel for the entire GCC will not be forthcoming until a dramatic shift in Israel’s policies towards the Palestinians take place?
In sum, the domestic political and economic reality in the United States appears to finally have forced a now reportedly personally very involved President Trump to sign an objectively unpalatable deal with Iran to bring about the reopening of the Strait of Hormuz and initiate a new negotiation process concerning Iran’s nuclear program. Israel’s position and near-term actions remain the biggest question mark, but “this time does appear to be different” and a more concrete move towards a lasting ceasefire is here.
Jacob
