US and Iran announce peace deal to reopen Strait of Hormuz

The US and Iran say they have reached an agreement to reopen the Strait of Hormuz, paving the way for talks on Tehran’s nuclear program and halting a war that has killed thousands and roiled the global economy.

“The deal with the Islamic Republic of Iran is now complete,” US President Donald Trump said in a social media post on Sunday. “I hereby fully authorize the free opening of the Strait of Hormuz and at the same time hereby authorize the immediate lifting of the United States naval blockade.”

Iran is pushing different versions of the deals as the US sticks to the timeline

Quick answers to key questions

•5 QUESTIONS

The US and Iran have reached an agreement to reopen the Strait of Hormuz, end their military blockades and allow negotiations on Iran’s nuclear program.

Oil prices fell more than 4% after the peace deal was announced as markets reacted to the potential reopening of the Strait of Hormuz, a key oil shipping route.

The deal is expected to ease tensions and restore oil flows through the Strait of Hormuz, significantly affecting global energy prices and availability.

Iran has demanded access to billions of dollars in frozen overseas funds and long-term relief from sanctions as part of the peace deal negotiations.

It is unlikely that oil prices will quickly return to pre-conflict levels, as oil transport and infrastructure in the Strait of Hormuz may take considerable time to restore.

The announcement came first from Pakistani Prime Minister Shehbaz Sharif, followed by Trump and Iran’s state media, which portrayed the deal as a capitulation by the US.

Oil drops

Oil fell after the report. Brent fell more than 4% to $84 a barrel after closing last week at its lowest level in more than three months, while West Texas Intermediate hovered near $81. The dollar fell against its Group of 10 peers in early Asian trade, with the risk-sensitive Aussie leading gains. The euro gained 0.3% against the dollar, while the Australian dollar gained roughly 0.5%.

Neither side released the text of the agreement, but broad outlines circulated for several days. Iranian Deputy Foreign Minister Kazem Gharibabadi said on state television that the text of the memorandum of understanding would be made public after the official signing scheduled for June 19.

Read also | Oil prices fell more than 4% after the US-Iran peace deal to open the Strait of Hormuz.

Hormuz reopen

The US and Iran will end their competing blockades of the Strait of Hormuz, one of the world’s busiest waterways. They agreed not to attack each other and to begin negotiations on Iran’s nuclear program. Iran would get relief from sanctions targeting its oil sales overseas.

While both sides have claimed victory, they remain deeply distrustful of each other and serious questions remain about their ability to reach a broader agreement. The view remains unclear from Israel, where the government of Prime Minister Benjamin Netanyahu threatened the signing at the last minute with new attacks on Lebanon.

Trump may face a heavy blow at home from Iran hawks who fear he is only pandering to issues like Iran’s nuclear capability and its ballistic missile program that were the reason he started the war in the first place.

Economic rewards for Iran?

The financial incentives Iran will receive are also unclear. A senior US official, speaking to reporters on Friday, said the two sides were circling a deal that would see Iran reap economic rewards each time it meets a set of US demands.

But Iran also demanded access to billions of dollars in funds frozen in overseas bank accounts, as well as long-term relief from sanctions.

The announcement was the result of weeks of back-and-forth negotiations between Washington and Tehran since a ceasefire took effect in early April, with occasional clashes that threatened to derail diplomatic efforts to end the war.

Trump has claimed for weeks that the two sides are on the verge of a deal. He said on Saturday that the agreement would be signed the following day – his 80th birthday.

Read also | Gold gains over 1% after US and Iran reach peace deal

The deal will help allay fears of an immediate return to the conflict that has wreaked havoc on global energy markets and raised the risk of a wave of inflation. It will also ease some of the political pressure Trump will face ahead of November’s midterm elections. Polls show that the war is deeply unpopular among Americans.

Iran closed the Strait of Hormuz shortly after bombing by the US and Israel sparked the war and cut the pipeline for what is typically a fifth of the world’s oil and liquefied natural gas supplies. The route for vessels entering and exiting the Persian Gulf remains severely restricted, with crossings at a fraction of pre-war levels.