Hormuz At Standstill, Denting US-Iran Peace Deal Hopes

(MENAFN- Live Mint) (Bloomberg) -- Shipping in the Strait of Hormuz was at a near standstill early Sunday after Iran reversed its decision to reopen the waterway and fired on vessels attempting to pass, warning it would block transits as long as the US blockade of Iranian ports remained.

The standoff over Hormuz - through which about a fifth of the world's oil and liquefied natural gas transited before the US-Israeli war on Iran - threatens to deepen the energy crisis roiling the global economy and undermine expectations of an imminent peace deal touted by US President Donald Trump. Hormuz is one of several unresolved issues in peace talks, including Iran's nuclear program and Israel's ongoing invasion of Lebanon.

“Ships are awaiting instructions from Iran's armed forces to determine whether they can pass through the route,” Iran's semi-official Mehr news agency reported on Sunday.

Still, late Saturday, Iran's Parliament Speaker Mohammad Bagher Ghalibaf, who led the Iranian delegation in talks with the US earlier this month in Pakistan, said that while gaps“remain significant,” the negotiations are making progress. He added that Iran's armed forces are prepared to act even as discussions take place.

“It is impossible for others to pass through the Strait of Hormuz while we cannot,” he said in a televised address, referring to the US naval blockade.

Meanwhile, the US military is preparing to board Iran-linked oil tankers and seize commercial ships in international waters in the coming days to pressure Iran into reopening Hormuz, the Wall Street Journal reported Saturday, citing anonymous American officials. The White House didn't immediately respond to a request for comment about the Journal's reporting.

The Islamic Revolutionary Guard Corps' Navy issued a statement Saturday afternoon warning vessels not to leave their anchorages in the Persian Gulf and the Sea of Oman, and that approaching the strait“will be considered cooperation with the enemy, and the violating vessel will be targeted.”

“They wanted to close up the strait again like they've been doing for years and they can't blackmail us,” Trump told reporters Saturday about Iran, although the strait was fully open until the US and Israel began their bombing campaign seven weeks ago.“We'll have some information by the end of the day, you know. We're talking to them. We're taking a tough stand.”

Lebanon Ceasefire Fraying

There were also signs the ceasefire in Lebanon - linked to Iran's decision to allow Hormuz traffic - may be fraying. The Israel Defense Forces said it struck“saboteurs” approaching its troops in violation of the truce. The developments upend rising optimism that the US and Iran were nearing a broad agreement to end the war that has claimed thousands of lives and disrupted energy exports from the Persian Gulf.

On Saturday, Israel struck what it called a“terrorist cell” in south Lebanon, where its invasion has killed around 2,000 people and displaced over 1 million. President Emmanuel Macron also said a French soldier was killed in an attack on UN peacekeepers in Lebanon and suggested Hezbollah - the Iranian proxy that Israel is fighting - was to blame.

Trump said Saturday there were“very good conversations” going on with Iran. A day earlier, he said the US would work with the Islamic Republic to recover the country's“nuclear dust.”

But Esmail Baghaei, Iran's Foreign Ministry spokesman, told state television that enriched uranium“is as sacred to us as Iran's soil, and it won't be transferred anywhere under any circumstances.”

The material - which the US says was buried deep underground after its bombing of Iran's nuclear facilities during last year's 12-day war - lies at the core of efforts to end the conflict, and its fate is central to any broader deal.

Momentum for a lasting peace had been building late last week. Cracks began to emerge Saturday with Iran's criticism of the continued US blockade.

The UK Navy soon after said a tanker was approached by IRGC gunboats before being fired at, adding that the vessel and its crew were safe. A container ship was hit by an unknown projectile in a separate incident off the coast of Oman, it said.

Iran's Supreme Leader Mojtaba Khamenei said the country's“navy stands ready to make enemies taste the bitterness of new defeats” in a statement marking National Army Day. It wasn't clear if his message was in direct response to developments surrounding Hormuz.

Iran is in control of the strait and will secure its rights“either at the negotiating table or in the field,” Iranian First Vice-President Mohammad Reza Aref said, according to the semi-official Mehr news agency.

“While a deal appears to be in sight that may bring an end to the current round of US-Iran hostilities and relief to energy markets, it's unlikely to result in a full or lasting peace,” Bloomberg Economics analysts including Jennifer Welch wrote in a report.“We assess any deal will be limited and fragile.”

Deal Confusion

Trump told Bloomberg in a phone interview on Friday that Iran has agreed to suspend its nuclear program indefinitely, and“most of the main points” in discussions with the country are finalized.

The president also floated in the interview the threat of resuming strikes on Iran once the current ceasefire expires within days.“Maybe I won't extend it, so you have a blockade, and unfortunately we have to start dropping bombs again,” he said.

Trump's comments and Tehran's declaration on Hormuz on Friday were the latest signs the two sides were working behind the scenes on a deal after their first round of direct talks in Pakistan recently failed to yield an agreement.

The war saw Iran retaliate against US bases across the region and strike oil and gas infrastructure belonging to American allies in the Gulf, triggering a global energy crisis.

GLOBAL REACT: US-Iran Deal in Sight - Lasting Peace Still Remote

Oil, fuel and natural gas prices plunged on hopes that the latest developments would mean an end to the war and more energy supplies could transit safely through Hormuz. Brent crude dropped 9% on Friday to around $90 a barrel. Diesel prices in the US and Europe also fell.

In a notable shift, real-world oil prices also eased significantly alongside headline futures prices. On Friday, dated Brent, the world's most important physical price, fell below $100 a barrel for the first time since March 11. Stocks extended their rally on speculation the war would soon end.

One proposal under discussion is for the US to release $20 billion in frozen Iranian funds in return for Tehran giving up its stockpile of enriched uranium, Axios reported, citing two US officials and two other unidentified sources briefed on the talks.

Trump pushed back on that idea in the phone interview, repeatedly saying“no” when asked if he would release the $20 billion.

--With assistance from Weilun Soon, Sara Gharaibeh, Kate Sullivan, Omar Tamo, Valentine Baldassari and Patrick Sykes.

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