What the New US-Iran Deal Means for Global Oil and Regional Stability

Iran's Path to Reopening the Strait of Hormuz

In a significant development, Iran is poised to take immediate actions to reopen the Strait of Hormuz following a preliminary agreement with the United States aimed at concluding the ongoing conflict. This deal, which is expected to be officially signed in Switzerland on Friday, will permit Iran to sell its oil without any restrictions.

The agreement stipulates that the US will allocate at least USD 300 billion for Iran's reconstruction post-war and will work towards lifting all sanctions imposed by the US and the United Nations, contingent upon a final agreement regarding Iran's nuclear ambitions.

The US's commitment to allow Iran to freely sell oil and the potential lifting of sanctions represent substantial concessions, surpassing the terms of the 2015 nuclear deal that former President Donald Trump abandoned, labeling it the 'worst deal ever.' This new arrangement is likely to face significant backlash in Washington and poses a considerable challenge for Israeli Prime Minister Benjamin Netanyahu, who initiated the conflict alongside Trump on February 28.

The agreement also mandates an immediate cessation of hostilities in Lebanon between Israel and the Iranian-supported militia Hezbollah, a particularly sensitive aspect since Israel has asserted its right to defend itself and maintain control over large areas of Lebanon. While Iran insists on a withdrawal as part of the deal, the leaked documents do not explicitly mention this requirement.

Negotiations for a final agreement are set to commence over the next 60 days, with the Trump administration asserting that the deal will prevent Iran from developing nuclear weapons. The US's proposals seem designed to encourage Iran to reach an agreement.

However, Iran appears to be receiving upfront benefits with minimal concessions. Much of the agreement aims to restore the pre-war status quo, including the cessation of hostilities and the reopening of the Strait of Hormuz, a vital route for global oil and natural gas, whose closure has led to a significant energy crisis.

Additional concessions to Iran, some of which are unprecedented, include funding for reconstruction, the complete lifting of sanctions, and the release of frozen assets, all contingent on the progress of further negotiations regarding Iran's nuclear program.

Sources familiar with the memorandum of understanding indicated that it aligns closely with details reported by a Saudi-owned broadcaster, which disclosed aspects of the deal earlier this week. These individuals requested anonymity due to the sensitive nature of the discussions.

Officials in the Middle East have also confirmed that the versions published by various media outlets largely correspond with the final agreement.

Neither the White House nor other US officials have released the terms of the deal, and Iran has yet to provide an official version. Iran's semi-official news agency has claimed that certain details in the media reports are incomplete.

The Deal's Impact on the Global Economy

This agreement represents a significant victory for the global economy, as it facilitates the reopening of the Strait of Hormuz, through which a substantial portion of the world's oil and natural gas was transported prior to the conflict. The strait's closure had led to increased energy prices and higher costs for essential goods.

Iran had previously allowed some vessels to pass through the strait after paying tolls, a practice that had not occurred before, as the strait is situated in Iranian and Omani territorial waters and is considered an international waterway. The US had also provided military assistance to facilitate the passage of other tankers, but traffic levels through the strait remained far below pre-war figures.

The agreement outlines that the US will lift the blockade on Iranian ports and aims to restore traffic through the strait to pre-war levels within 30 days, while acknowledging that Iranian mines may still pose a threat and need to be cleared.

Significant Concessions for Iran

While the deal states that the eventual lifting of sanctions will depend on future negotiations, the US will immediately grant waivers for Iranian oil sales.

Issuing oil waivers at the outset of the 60-day negotiations diminishes the US's leverage over Iran. Prior to the 2015 nuclear deal, Iranian oil sales were restricted by international sanctions, which were only lifted upon the completion of the agreement in 2015.

The interim deal also paves the way for the potential removal of all sanctions imposed on Iran by the US and the UN, although the timeline for this will be determined later. This is a significant departure from the 2015 agreement, which only lifted certain sanctions in exchange for Iran significantly reducing its uranium enrichment and stockpile.

The accord also promises Iran at least USD 300 billion for reconstruction following extensive US and Israeli airstrikes, a remarkable figure and another substantial advantage for Iran. US Vice President JD Vance has indicated that Gulf Arab nations would contribute this amount as investments in Iran.

Future Negotiations Ahead

The interim deal establishes a 60-day period, which may be extended, for negotiations aimed at limiting Iran's nuclear program, a topic that has been discussed in various rounds of talks during Trump's second term without success. Iran asserts that its nuclear program is peaceful, despite possessing enough highly enriched uranium to potentially create multiple nuclear weapons, according to the International Atomic Energy Agency.

In the interim agreement, Iran reiterates its commitment to never pursue nuclear weapons, a promise it made in the 2015 nuclear deal. Iranian diplomats have frequently referenced statements from the late Ayatollah Ali Khamenei asserting that Iran would not develop an atomic bomb. It remains uncertain whether Khamenei's son, the new Supreme Leader Ayatollah Mojtaba Khamenei, will uphold this stance.

Trump has cited various shifting objectives for the conflict, including the aim to dismantle Iran's nuclear and missile programs and its support for Hezbollah and other regional proxy groups. He has also suggested that the conflict could lead to the overthrow of the Iranian government.

The interim deal does not fully achieve these goals. The negotiations have also revealed a rift between Netanyahu and Trump, particularly as Netanyahu seeks reelection amidst growing domestic criticism regarding the emerging agreement. However, Netanyahu may find it challenging to oppose Trump, given Israel's heavy reliance on the US for diplomatic and military backing.