On Saturday, the conflict between the US and Iran reaches its 128th day. Despite the signing of the Memorandum of Understanding on June 17, the US and Iran have yet to decide on ways to achieve peace through diplomatic means.
This agreement was actively pursued by President Donald Trump, and Iran accepted it due to the significant security and financial concessions provided.
But it is not a peace settlement. It is an extended ceasefire, and it remains hostage to the very dynamics that drew the United States and Iran into conflict in the first place. How the next phase unfolds will turn on two variables: U.S. domestic politics and Israel’s willingness to hold to a regional truce.
For all his bluster, President Trump clearly wants the Iran war behind him; reopening the Strait of Hormuz is an achievement enough for now. But the price he paid does not sit well with Republican hawks or some Democrats, who read the terms as strengthening Iran and betraying Israel.
Trump has weathered the initial political storm, but pressure for more aggressive measures is likely to grow again if the complex nuclear talks slip past their initial 60-day deadline. Unlike Gaza, this is not a file the White House can simply let drift and hope Washington forgets about it.
How Israel responds will also be critical. The latest war was never a standalone crisis—it was an extension of Israel’s post–October 7 campaign to reshape the regional balance of power.
The 14-point appears to bind Israel to a regional ceasefire even though the Netanyahu government was not a party to the talks, and recent friction with the United States signals the depth of Israel’s displeasure with the terms. Israel has made clear it will respond militarily if it believes its national security is threatened, irrespective of U.S. policy, and continued clashes in Lebanon illustrate the risks.
If U.S. domestic pressure or Israeli action prompts significant new military action, flows through the Strait of Hormuz will again be in jeopardy. Tehran understands the leverage conferred by its ability to choke the waterway, just as Washington wields the threat of sanctions on Iranian exports.
Expectations that the Gulf will simply revert to business as usual are misplaced, as recent incidents have illustrated. The risk calculus around the world’s most important oil chokepoint has changed for good, and a bumpy road ahead will keep risk premiums elevated.
Key U.S. interests, including energy security and Persian Gulf stability, require ending the war now—even at the cost of major concessions to Iran. The script is now fully flipped from last February, when the National Security Presidential Memorandum 2 called for driving Iran’s oil exports to zero.
Instead, Washington has agreed to lift the U.S. naval blockade and waive sanctions on Tehran’s oil exports, which will eventually bring new international capital into the Iranian oil industry and likely boost output. Iran will soon be poised to reclaim its prewar export volume of 1.6 million barrels per day (mb/d), and from there head back toward its 2.4 mb/d level from 2017–2018—and perhaps beyond.
The United States could only give itself so much time. Aggressive drawdowns of the U.S. Strategic Petroleum Reserve worked to prevent runaway fuel prices until a political settlement was reached. But this is also why a deal should have been closed in early April; at the same time the ceasefire was reached and the U.S. blockade imposed.
During the intervening nine weeks, the ongoing export hiatus helped erode global oil inventories by more than 340 million barrels and drained the Strategic Petroleum Reserve by more than 60 million barrels, bringing it to its lowest level since it was first filled during the Reagan administration.
U.S. oil chiefs warned that dwindling reserves would cause oil and fuel prices to climb higher soon, while hopes that Iran would cave to prevent lasting upstream damage from production shut-ins proved to be wishful thinking.
Iran had the stronger hand simply by being willing to continue the stalemate longer. Trump acknowledged the resulting pressure himself, noting that “we run out of reserves at about four weeks.” While it may push for Hormuz transit fees, Iran is likely to prioritize a resumption of Gulf shipping to make this deal work.
The waivers on and removal of sanctions, the unfreezing of funds, and the $300 billion rehabilitation fund are well worth any foregone shipping fees. If Washington does not live up to expectations, Tehran can demand fees and/or close the Gulf again.
For much of the world, the U.S.-Israeli strikes on Iran were an unwelcome surprise, as was the Iranian blockade of the Strait of Hormuz. The constant prospect of renewed violence, combined with the uncertainty over when U.S.-Iranian tensions would abate, left governments on edge for months and cast a shadow over the global economy.
For countries in the Global South, this was another instance of decisions made in Western capitals that shook their countries and their economies and into which they had no input. Not coincidentally, many of their publics came out of this conflict admiring Iran’s defiance and resilience.
In fact, few governments around the world are sympathetic to Iran, but most don’t especially fear it either. They much prefer an open-ended negotiation process in Switzerland to unilateral U.S. military action, and an open strait to a closed one. The hope, shared among BRICs+ states and advanced economies alike, is that the United States will yield to some sort of agreement that lends itself to multilateral window dressing.
At the same time, they are counting on the United States remaining willing to act if Iran does something genuinely alarming. They understand that such an outcome would be fragile, and it would require confidence in a U.S. government that they find increasingly unpredictable.
The goal, in fact, is an arrangement that somehow reins in the United States and Iran simultaneously. While imperfect, it would be better than a range of other possible outcomes that they see. European governments bring particular anxiety about the future of diplomacy over the Iranian nuclear file, while Japan and South Korea are focused more squarely on energy security and the reliability of Gulf shipping.
Ultimately, few governments believe that Iran can be reformed from outside, and certainly not at the point of a U.S. or Israeli gun.
Their instinct is to manage the situation until it improves. Expectations are relatively low. From their perspective, things were relatively good before the war began in February: Negotiations with the United States were ongoing, Iranian proxies were relatively quiescent, Gulf states felt secure, and the Strait of Hormuz was open. For developed economies in Asia and Europe, and for much of the rest of the world, getting back to that point is a worthy goal.
Iran’s de facto control over the Strait of Hormuz may end up being one of the most consequential outcomes of the war, setting a worrying precedent not only for the Middle East but globally.
Should Iran be successful in its quest to assert its control over the international body of water, others may seek to do the same in a marked erosion of the principle of freedom of navigation—a key underpinning of the international order’s architecture.
Tehran is driving to create a new status quo. In a June 26 X post, Kazem Gharibabadi, Iran’s deputy foreign minister, insisted that there would be no safe passage through the strait “with ambiguous arrangements, parallel routes, or decision-making outside of Iran’s considerations as the coastal state.”
Tehran has also created a “Persian Gulf Strait Authority” to oversee operations in the strait and established a “joint working group” with Oman to discuss the strait’s future administration.
In addition, Iran appears determined to change some type of fee—semantic gymnastics to avoid the term “toll”—for strait passage, with the MOU only restricting such charges for 60 days.
Tehran has deemed its management of the strait a “red line” and seems impervious to U.S. military pressure. The Islamic Republic will continue to wield the threat of drone and missile strikes on maritime traffic through Hormuz, while also pursuing efforts to monetize and institutionalize its control over the strait. Iran recently reinforced this posture by attacking a container ship transiting the strait via a route that Iran claimed was unauthorized.
Even if this latest escalation unravels the MOU, Tehran appears willing to risk a return to full-on conflict rather than acquiesce to mounting pressure that the strait reopen unconditionally.
Beyond oil and gas, the Strait of Hormuz is critical to the export of fertilizers, and the U.S.-Iran peace deal has allayed fears of a prolonged fertilizer market disruption. Since the June 17 deal, fertilizer shipments have begun to resume through the strait, with at least 16 vessels transiting.
Coupled with China’s concurrent decision to ease urea export restrictions, resumed Hormuz shipments have helped push fertilizer prices to their lowest levels since February.
However, the diplomatic announcement will not unwind the widespread impacts of the Iran war on the global food system.
Fertilizer aside, soaring fuel costs have driven up the costs of food production and transportation, pushing food prices higher worldwide, including in the United States, where the annual inflation rate hit 4.2 percent in May.
At the same time, the conflict has disrupted humanitarian aid channels, with the UN World Food Programme estimating that it will serve 1.5 million fewer people this year than it would have absent the Iran war’s disruptions.
The peace deal is an important step in the recovery of global fertilizer markets and the easing of global food prices, but full food system recovery will not be immediate. The decisions farmers were forced to make this spring will continue to ripple through the global food system into 2027.
Looking ahead, it will take months for the strait to resume normal shipping activity and years for energy and fertilizer production infrastructure to regain full capacity.
I find that over-stretching of this conflict between the U.S. and Israel will certainly make the situation much more precarious than anyone could have assumed before the advent of this conflict.
Now, this conflict has dented the global economy much deeper, as the energy crisis is not only the sole component behind elevating inflationary pressure, but rising inflationary pressure on fertilizers and food will dent the global economy too, and the global central banks might find it difficult to hold interest rates this year.
On evaluating the movements of futures since the beginning of this year, on different time pattern charts, I observed an influence of surging scepticism over the success of this peace deal, which seems stuck in a Catch-22 ( https://www.investing.com/analysis/golds-catch22-prolonged-usiran-tensions-extend-bearish-pressure-200683147 ) position.
On a daily chart, on Friday, after opening the day at $2,139.65, tested the day’s high at $4,207.90, tested the day’s low at $4,136.20, closed the day at $4,187.30, below the immediate resistance at the 20 EMA (4,198.53) due to the formation of a “Bearish Crossover”, as the 9 EMA and 20 EMA have pierced the key support at the 200 EMA ($4,307.98), which ensures a long-term bearish sentiments below this key level on daily chart.
