(Bloomberg) — Shipping in the Strait of Hormuz came to a near halt early Sunday after Iran reversed its decision to reopen the waterway and fired on vessels trying to pass through, warning it would block transit as long as the U.S. blockade of Iranian ports lasts.
The standoff over the Strait of Hormuz, through which about a fifth of the world’s oil and liquefied natural gas passed before the US-Israel war against Iran, threatens to deepen an energy crisis that will roil the global economy and undermine expectations of an imminent peace deal offered by US President Donald Trump. Hormuz is one of several outstanding issues in the peace talks, including Iran’s nuclear program and Israel’s ongoing invasion of Lebanon.
“The ships are awaiting instructions from Iran’s armed forces to determine whether they can pass the route,” Iran’s semi-official Mehr news agency said on Sunday.
But Iran’s parliament speaker Mohammad Bagher Ghalibaf, who led Iran’s delegation to talks with the US in Pakistan earlier this month, said late Saturday that while gaps “remain significant,” talks are moving forward. He added that Iran’s armed forces are ready to act even as discussions are ongoing.
“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 oil tankers linked to Iran and seize commercial ships in international waters in the coming days to force Iran to reopen the Strait of Hormuz, the Wall Street Journal reported on Saturday, citing unnamed US officials. The White House did not immediately respond to a request for comment on the newspaper’s reports.
The Islamic Revolutionary Guard Corps’ navy issued a statement on 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 disrupting vessel will be targeted.”
“They wanted to close the strait again, as they’ve done for years, and they can’t blackmail us,” Trump told reporters Saturday of Iran, although the strait was fully open until the US and Israel began bombing 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 hard line.”
Lebanese ceasefire shatters
There have also been signs that the ceasefire in Lebanon – tied to Iran’s decision to allow the Hormuz traffic – may be fraying. The Israel Defense Forces said they struck “saboteurs” approaching their troops in violation of the ceasefire. The development belies growing optimism that the US and Iran are nearing a broad agreement to end a war that has killed thousands and disrupted energy exports from the Persian Gulf.
On Saturday, Israel attacked what it called a “terrorist cell” in southern Lebanon, where its invasion has killed about 2,000 people and displaced over 1 million. President Emmanuel Macron also said a French soldier had been killed in an attack on UN peacekeepers in Lebanon and suggested Hezbollah – the Iranian proxy Israel is fighting – was to blame.
Trump said on Saturday that “very good talks” are underway 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, a spokesman for Iran’s foreign ministry, told state television that enriched uranium “is as sacred to us as Iranian soil and will not be transported anywhere under any circumstances.”
The material – which the US says was buried deep underground after bombing Iran’s nuclear facilities during last year’s 12-day war – lies at the heart of efforts to end the conflict and its fate is central to any wider deal.
Momentum for lasting peace was building late last week. Cracks began to appear on Saturday with Iranian criticism of the continued US blockade.
The British Navy said soon after that IRGC gunboats approached the tanker before firing on it, 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.
Iran’s Supreme Leader Mojtaba Khamenei said Iran’s navy is ready to make enemies taste the bitterness of new defeats in a statement marking National Army Day. It was not clear whether his message was a direct response to developments around Hormuz.
Iran is in control of the strait and will assert its rights “either at the negotiating table or in the field,” Iran’s First Vice President Mohammad Reza Aref said, according to the semi-official Mehr news agency.
“While a deal that could end the current round of hostilities between the U.S. and Iran and ease energy markets appears to be on the horizon, it is unlikely to result in complete or lasting peace,” Bloomberg Economics analysts including Jennifer Welch wrote in a report. “We recognize that any deal will be limited and fragile.”
In a phone interview with Bloomberg on Friday, Trump said Iran had agreed to suspend its nuclear program indefinitely and “most of the major points” in discussions with the country had been completed.
The president also threatened to resume strikes on Iran in the interview once the current ceasefire expires in a few days. “I may not extend it, so you have a blockade and unfortunately we have to start dropping the bombs again,” he said.
Trump’s comments and Tehran’s statement on Hormuz on Friday were the latest signs that the two sides were working behind the scenes on a deal after their first round of direct talks in Pakistan recently failed to produce a deal.
The war saw Iran retaliate against US bases across the region and strike oil and gas infrastructure belonging to US allies in the Persian Gulf, sparking a global energy crisis.
GLOBAL REACTION: US-Iran deal in sight – Lasting peace still distant
Oil, fuel and natural gas prices fell on hopes that the latest development would mark the end of the war and allow more energy supplies to safely pass through Hormuz. Brent crude fell 9% to around $90 a barrel on Friday. Diesel prices in the US and Europe also fell.
In a significant move, real-world oil prices also fell sharply along with major futures prices. Brent, the world’s most important physical price, fell below $100 a barrel on Friday for the first time since March 11. Stocks extended their recovery on speculation that the war would end soon.
One proposal being discussed is for the U.S. to release $20 billion in frozen Iranian funds in exchange for Tehran giving up its stockpile of enriched uranium, Axios reported, citing two U.S. officials and two other unidentified sources briefed on the talks.
Trump pushed back on the idea in a phone interview, repeatedly saying “no” when asked if he would release the $20 billion.
–With help from Weilun Soon, Sara Gharaibeh, Kate Sullivan, Omar Tamo, Valentine Baldassari and Patrick Sykes.
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