Iran launched a missile and drone attack on the United Arab Emirates (UAE) at its Fujairah Oil Industry Zone — the first attack since the ceasefire on April 8. It also fired two drones at a ship in the Strait of Hormuz. This comes after President Trump began Project Freedom, which effectively is a coordination cell to move traffic through the strait, involving countries, insurance companies, and shipping organizations. It does not currently involve U.S. Navy warships escorting vessels through the strait, according to the Wall Street Journal. Two U.S.-flagged commercial vessels have been reported to have safely transited the strait. In response to Project Freedom, Iran said that it would attack any foreign force that tried to enter the strait.
Because President Trump’s previous announcements to restore commercial shipping did not pan out, oil and gasoline prices rose. As of May 5, Brent oil, the global benchmark, rose to $110 a barrel, and the average price of U.S. gasoline reached $4.48 a gallon, according to AAA. Markets were not convinced that Project Freedom would restore shipping through the strait since the initiative was short on detail and did not appear to involve escorting vessels.
President Trump launched Project Freedom at the request of countries whose vessels are stranded in the strait, whom he referred to as “neutral and innocent bystanders.” Trump posted on Truth Social, “For the good of Iran, the Middle East, and the United States, we have told these Countries that we will guide their Ships safely out of these restricted Waterways, so that they can freely and ably get on with their business.” About 1,600 ships are awaiting transit through the strait, where supplies of oil, liquefied natural gas, fertilizer, aluminum, and other commodities transit when the strait is open to commercial traffic.
Iran provided the United States with a 14-point peace proposal, which it says is aimed at ending the war, not extending the ceasefire. Over the weekend, President Trump indicated that he would reject the proposal. Iran wants the U.S. blockade against its ports lifted before talks begin regarding a nuclear deal, which is likely a non-starter for President Trump. Iran’s 14-point proposal also calls for the U.S. to lift sanctions on Iran, withdraw forces from the region, and cease all hostilities, including Israel’s operations in Lebanon.
Since April 13, the United States has had a naval blockade on Iran’s ports, which has deprived Iran of the oil revenue it needs to shore up its ailing economy. The Associated Press reports that Iran is getting some income from charging tolls for some ships to safely transit the strait. According to U.S. Treasury Secretary Scott Bessent, “We think that they’ve gotten less than $1.3 million in tolls, which is a pittance on their previous daily oil revenues.” The United States has warned shipping companies that they could face sanctions for paying Iran to transit the strait. Bessent also said that Iran’s oil storage is rapidly filling up and “they’re going to have to start shutting in wells, which we think could be in the next week.” That could be a costly enterprise since restarting shut-in wells could take weeks and could include a loss of productivity.
OPEC+ announced an increase in oil production of 188,000 barrels per day for June, below the increase of 206,000 barrels per day for May, announced when the UAE was still an OPEC member. The UAE, the cartel’s third-largest oil producer, officially departed OPEC on May 1. The UAE has been pursuing higher oil production and has invested heavily to achieve a target of around five million barrels per day, but was only producing about 3.4 million barrels per day under its OPEC quota prior to the Iran conflict.
Analysis
The U.S. is attempting to get ships moving through the Strait of Hormuz by guiding them via Project Freedom, while continuing with its blockade of Iranian ports. Iran has responded by attacking the UAE’s Fujairah Oil Industry Zone, the largest commercial storage hub for refined crude in the Middle East. In March, 1.62 million barrels per day of oil were exported via the Habshan-Fujairah pipeline, which bypasses the Strait of Hormuz. With negotiations for a long-term agreement to end the hostilities at a standstill, the supply disruptions the war is causing will continue, keeping prices high for the foreseeable future.
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