Iran wants to shut down a U.S. Navy-protected shipping lane through Oman's waters that has allowed oil and gas tankers in the Persian Gulf to exit the Strait of Hormuz without seeking Tehran's permission.
The Islamic Republic tried to impose its control over Hormuz this week by attacking three tankers navigating the strait through the U.S.-protected route. The attacks have pushed Washington and Tehran to the brink of a renewed war as they trade strikes across the Gulf.
The fighting this week represents "the most significant escalation of the conflict since its opening phase" in late February and early March, analysts at the maritime intelligence firm Windward said in a note.
Iran is losing control of the strait as the southern corridor along Oman's coast is scaled up with U.S. military support, said Michelle Wiese Bockmann, senior maritime intelligence analyst at Windward. U.S. Gulf allies are exporting their oil and gas through that southern route, Bockmann said.
"Iran will not have the ability to close the Strait of Hormuz going forward," U.S. Energy Secretary Chris Wright said at conference in New York City on June 24. "That's their key leverage and we're taking that leverage away from them."
Senior U.S. officials told reporters on June 17 that military escorts have allowed between 5 million barrels per day and 8 million barrels per day exit Hormuz. While exports through the strait have increased, they are still well below 20 million bpd of oil and products that transited Hormuz before the war.
Under the interim deal with the U.S., Iran promised promised safe passage to commercial ships through Hormuz and agreed to not charge tolls for 60 days. In exchange, the U.S. lifted its naval blockade of Iran and temporarily lifted sanctions on its oil sales.
But Tehran has insisted in the three weeks since the deal that ships are entitled to safe passage only if they use a nothern route through Iran's territorial waters.
The tanker attacks this week are "part of a sporadic targeted campaign by Iran to destabilize that southern corridor and send a message to Gulf State producers that are not sending their oil via that northern corridor," Bockmann said.
The Iranians point to the deal's fifth paragraph that says Tehran "will make arrangements using its best efforts" to ensure safe passage. The specific routes were left undefined. The deal also says the future administration of the strait will be defined by Iran and Oman in consultation with the other Gulf states.
"The underlying problem here is that the memorandum of understanding did not reach an understanding with respect to the management of ship traffic through the strait. It essentially punted that issue," said David Goldwyn, who served as the State Department's special envoy for international energy affairs under President Barack Obama.
Iran's Revolutionary Guard warned Thursday that U.S. military "interference in determining the routes of maritime traffic will not only be met with our decisive response, but will also seriously disrupt the gradual reopening process and put the interests of countries using the Strait of Hormuz at serious risk."
The U.S. has reinstated oil sanctions on Iran and President Donald Trump has threatened to reimpose the U.S. naval blockade in response to the tanker attacks. Iran's Ministry of Foreign Affairs said this week that reimposing oil sanctions is a "material breach" of the memorandum of understanding.
Tehran "holds the United States Government fully responsible for the consequences arising from this breach of commitment," the ministry said in a statement. The U.S. energy secretary insisted last month that Washington will keep the strait open with or without a deal.
"With the U.S. military and some of the things we've developed, we can assure the flow of energy out of the Gulf with or without an agreement with Iran," Wright said June 24.
Under international law, Iran is not allowed to control traffic through Hormuz, said James Kraska, an expert on international maritime law at the U.S. Naval War College. The international community "has an unsuspended right" to transit the strait without any impediments, Kraska said.
But Iran's tanker attacks are impacting traffic flows through Hormuz. Ship operators are favoring the Iranian route over the corridor along Oman's coast, reinforcing the impact of the tanker attacks earlier this week, according to the trade intelligence firm Kpler.
"We're back to where we were before the memorandum of understanding, which is that the Iranians are threatening any non-Iranian approved traffic and the U.S is unable to open the strait to free navigation by military means," Goldwyn said.
"So its only choices are either to close the strait entirely by a blockade or to use limited military strikes on Iran for violating the agreement," he said.
Oil prices have risen more than 4% this week in response to the latest hostilities. U.S. crude oil was trading around $71 per barrel on Friday while Brent, the international benchmark, is hovering just under $76. Prices are well below Brent's wartime highs of around $122 per barrel.
If the U.S. reimposes the blockade, oil prices will likely rise further because it will take 1.5 million bpd of Iranian exports off the market, Goldwyn said.
But Iran's efforts to control Hormuz are likely untenable over the long term, Kraska said. It would set a dangerous precedent that could be repeated in other trade chokepoints, he said.
China and Russia, for example, have an interest to ensure the precedent is not repeated in the Strait of Malacca or the Danish Straits that connect to the Baltic Sea, the analyst said.
Iran also risks overplaying its hand and creating an incentive for Gulf producers to redirect flows through alternative routes like pipelines across Saudi Arabia and the United Arab Emirates, Kraska said.
"Long term, Iran is diminishing its trade space," he said.
