Trump scraps Iran MOU, leaving Hormuz talks stalled and oil risk high

The Trump administration has decided to abandon the June memorandum of understanding with Iran, according to the Wall Street Journal. This has left diplomats without a framework to restart talks on reopening the Strait of Hormuz. Crude oil prices surged following the news, with Brent crude breaching $88 a barrel, while major equity indexes declined.

In 2018, President Trump signed a preliminary deal that aimed to reopen the Strait of Hormuz and begin talks on Iran’s nuclear program. In exchange, Iran would receive sanctions relief and access to its frozen assets. However, the deal fell apart within weeks when Iran began attacking ships in the waterway. The Trump administration has since followed a policy of maximum economic pressure against Iran.

Iran's Islamic Revolutionary Guard Corps reiterated its stance on Wednesday, stating that if the United States stops obstructing and returns to the memorandum of understanding, they could reopen the Strait of Hormuz. The impasse has hindered a week of intensive shuttle diplomacy, with Pakistan's army chief Asim Munir visiting Tehran and Oman's foreign minister following suit, both leaving with little progress.

Oman had attempted to finalize a transit-lane agreement, but Iran demanded changes that would grant it greater control over traffic. Iran claimed to have produced an agreement on transit routes, though Muscat has not confirmed this, and Iranian officials have given conflicting accounts. Qatar's Prime Minister Sheikh Mohammed bin Abdulrahman al-Thani also met with Iran's foreign minister in Tehran, but their joint statement did not announce any breakthrough.

Market analysts suggest that the old memorandum of understanding is essentially dead in all aspects, making it harder for mediators to negotiate a compromise. The U.S. launched "Operation Economic Outcast" on August 25, sanctioning nearly 60 entities and expanding secondary sanctions to five sectors. This "economic onslaught against Iran's financial connections around the globe" has further strained relations.

As of Wednesday, August 28, marking the six-month anniversary of the strikes on Iran, shipping traffic through the Strait of Hormuz had risen slightly but remained below the 10-day average.