Key Takeaways:
Iran has proposed dividing control of the Strait of Hormuz into two one-way shipping lanes, with Tehran managing one side and Oman the other, in a bid to formalize its grip on the world's most critical oil chokepoint.
Iran's deputy foreign minister said Tehran presented the proposal to Oman during talks in recent days, according to state media, as the two countries negotiate a joint mechanism to manage traffic through the strait that normally handles about a fifth of global oil supply. The U.S. paused its bombing campaign against Iran on Friday after 13 consecutive nights of strikes, with Brent crude falling 6.8% to $85.49 a barrel Monday on hopes of a diplomatic resolution.
"The U.S. side presented a proposal that reflected extreme demands. The Iranian delegation explicitly rejected this proposal," Kazem Gharibabadi, Iran's deputy foreign minister for legal and international affairs, said at a conference for legal professionals, describing the breakdown of earlier U.S.-Iran talks in Islamabad. He added that Iran and Oman are now discussing "compensation for services related to passage through the strait and their cost."
The proposal comes after Iran's Revolutionary Guard turned back six vessels Monday that attempted to transit through routes not approved by Iranian authorities, state television reported. Since the war began Feb. 28, Iran has effectively blockaded the waterway, disrupting shipping that carries about 20 million barrels of oil daily. The disruption has sent shockwaves through energy markets: U.S. gasoline prices have climbed more than 30% since the conflict started to a national average of $4.09 a gallon, while diesel has surged to more than $5 a gallon from $3.56 in January, according to AAA data.
Oil markets price a fragile truce
The lull in fighting has provided temporary relief for crude markets, but the underlying risk remains elevated. Spot rates for very large crude carriers and suezmax shipments have surged as insurance premiums spike across three critical shipping routes simultaneously — the Strait of Hormuz, the Red Sea and the Black Sea — according to Lloyd's List analysis. Shipping traffic through the Bab el-Mandeb Strait, the southern gateway to the Red Sea, fell to its lowest level in months Sunday after Iran-backed Houthi rebels traded fire with Saudi Arabia.
Iran's oil minister claimed the country sold $18 billion worth of crude during the war and subsequent ceasefire, generating more than 60% of the oil revenue projected in Iran's annual budget. The last time a major power sought to control the strait — during the Iran-Iraq war in the 1980s — the U.S. reflagged Kuwaiti tankers and deployed naval escorts in Operation Earnest Will, a precedent that underscores the strategic stakes involved.
Diplomacy's narrow window
President Trump expressed optimism Monday about the talks but warned that if no deal emerges, "we go back to doing what we were doing" — striking Iran. The U.S. has paused its bombardment to allow negotiations space, though Iran insists there is no direct dialogue with Washington, only discussions with Oman. Mediators from Qatar and Pakistan have made "significant" progress toward restoring an interim ceasefire deal that collapsed in early July, the Associated Press reported, citing regional officials.
The risk of a broader conflict remains. Iran's military said Tuesday it "will not leave any threats unanswered" after Trump's warning, while Israeli Defense Minister Israel Katz confirmed that U.S. aircraft have been using Israeli bases to strike Iran. Israel has not participated in the latest round of hostilities but Prime Minister Benjamin Netanyahu, who met Trump at the White House Tuesday, warned that any Iranian attack on Israel would trigger a "very, very forceful" response.
For energy markets, the question is whether the Iran-Oman talks can produce a framework that restores predictable shipping before the current pause collapses. The last ceasefire, signed in June, held for less than a month before fighting resumed.
This article is for informational purposes only and does not constitute investment advice.
