The United States and Iran Agreed on a Tenuous Two-Week Ceasefire

The United States and Iran agreed to a two-week ceasefire that set oil prices dropping and stock markets soaring. The Strait of Hormuz was temporarily opened until a dispute arose over whether Lebanon was part of the ceasefire. Iran reclosed the strait when Israel continued to strike Lebanon, as both the United States and Israel do not agree with Iran that Lebanon is part of the deal. The details of the ceasefire agreement remain unclear, with no official agreed-upon language providing specifics.

Even when the strait was opened for a short period of time, there were conditions for passage. According to Iran’s Foreign Affairs Minister Abbas Araghchi, safe passage over the next two weeks “will be possible via coordination with Iran’s Armed Forces and with due consideration of technical limitations,” which means that individual ship owner and operator companies would need to receive permission from Iran to resume shipping through the strait. According to the Associated Press, the ceasefire plan reportedly also allows Iran and Oman to charge tolls on ships navigating the strait, as it lies within the territorial waters of both countries. Shippers had not previously paid tolls because the strait is considered an international waterway. The New York Times reports that the move could violate international law.

On April 8, four ships were allowed to pass with Iran’s Islamic Revolutionary Guard Corps charging tolls and indicating that it would limit traffic to about a dozen ships a day. According to the Wall Street Journal, Iran is formalizing a tiered approach to fees with ships carrying Iranian oil or goods passing freely, ships from friendly countries paying a toll, and ships from countries aligned with the United States or Israel blocked. Shipping operators say fees would be set around a week in advance and depend on the size of the vessel, with payments ranging to $2 million for a supertanker that can carry around two million barrels of oil, paid in crypto or Chinese renminbi.

Shippers are wary of the logistics for passage and may wait to ensure that the ceasefire holds before committing their vessels. Around 187 ​laden tankers carrying 172 million barrels of oil and refined products were afloat inside the Gulf before the ceasefire, and many more ocean-going ​vessels are waiting to transit. Under normal conditions, it would likely take more than two weeks to clear the backlog.

Negotiations for peace are scheduled to begin on Saturday, April 11, based on one of Iran’s 10-point peace proposals, which President Trump called “a workable basis on which to negotiate.” While it is unclear what the proposal contains, Iran had previously demanded conditions that included guaranteed control over the Strait of Hormuz, acceptance of its nuclear enrichment activities, removal of sanctions, and repatriation of financial losses. On Truth Social, President Trump wrote that there would be “no enrichment of Uranium,” that the United States and Iran would work together to dig up and remove nuclear “Dust,” that potential relief from tariffs and sanctions are on the table, and that many of the “15 points” of the Trump administration’s ceasefire plan have been agreed to. The White House also notes that the original “10-point plan” of Iran referenced in media reports was discarded and replaced with a later plan that is the basis of negotiations.

The price for Brent crude, the global benchmark for oil, dropped below $95 a barrel after hovering around $110 when the ceasefire was announced, but then headed back up towards $100 a barrel when Iran reclosed the strait. The initial drop was one of the largest 12-hour reductions in oil prices in history. The national average price of regular unleaded gas was $4.17 per gallon on the morning of April 9. Patrick De Haan, head of petroleum analysis at Gas Buddy, predicted it could fall below $4 a gallon within one or two weeks if the ceasefire continued. He further commented, before the strait was re-closed, that “gas prices could start reversing nationally in 48 hours or so — by a few cents every day.”

Alternate Route to Strait of Hormuz Needed

The Iran war has clearly pointed out the bottleneck that the Strait of Hormuz can cause when Iran effectively chooses to close it, barricading 20% of global oil and gas supplies without a transit point. Clearly, an alternate route or routes are needed besides the few pipelines that have been built: one by Saudi Arabia — the East-West pipeline, capable of moving seven million barrels per day to the Red Sea — and the other by the United Arab Emirates — a 1.8-million-barrel-per-day pipeline linking onshore oil fields to the Fujairah export terminal in the Gulf of Oman. Even those are not safe from Iranian attacks. An Iranian drone struck the East-West pipeline on April 8, according to the Wall Street Journal. Damage assessments are still being made.

Analysis

While it’s a positive sign that the U.S. and Iran are engaging diplomatically to resolve the conflict and reopen the Strait of Hormuz, the difficulty of both sides reaching a lasting agreement should open eyes around the world about the need for alternative supply chain arrangements.

One proposal — The India-Middle East-Europe Economic Corridor (IMEC) — is a proposed, multi-modal transportation network of pipelines, trains, and roads linking India to Europe via the UAE, Saudi Arabia, Jordan, and Israel. It features an eastern corridor (from India to the Persian Gulf) and a northern corridor (from the Gulf to Europe). It would aid economic growth, trade, and regional connectivity by enhancing efficiency, reducing transit times, and providing a logistical alternative to the Suez Canal.

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