Brent crude oil, the international benchmark, was trading around $83 per barrel on the morning of June 15—a three-month low—after an announcement that a deal between Iran and the United States had been reached; the average price of gasoline in the United States fell to $4.06 per gallon. Many states are seeing gasoline prices well below $4.00 per gallon, while states like California, with onerous energy policies and high taxes, continue to drive up the average price; California’s average gasoline price was $5.71 per gallon on June 16.
With negotiations ongoing, the United States and Iran have agreed to terms for a memorandum of understanding (MoU), with a signing ceremony scheduled for Friday, June 19th, in Geneva, Switzerland. As reported by the New York Times, General Mohammad Bagher Ghalibaf, the lead Iranian negotiator, and Abbas Araghchi, the foreign minister, will represent Iran at the signing of the MoU. Vice President J.D. Vance will be at the signing for the United States, while President Trump attends the G7 Summit in France; the President may attend depending on scheduling.
Details of the MoU’s precise language are limited, though it is rumored to be released by Wednesday. From what the public has been made aware of, mostly from statements by President Trump and Vice President Vance, at its core is the need for both countries to come to a true negotiated settlement on the future of Iran’s nuclear program and ambitions. President Trump has repeatedly stated that an equally vital, and nonnegotiable part of this MoU, is that the Strait of Hormuz must be reopened and “permanently toll-free.” Earlier in the war, Iran had charged some ships a fee of upwards of $2 million to pass through the strait. The memorandum of understanding suspends any attempts to collect tolls in the strait for 60 days while talks continue. The push for a toll-free strait falls directly in line with the international understanding of freedom of navigation in international waters, and with America’s commitment to ensuring the free flow of trade.
President Trump has insisted that if Iran fails to reach an agreement with the United States regarding its nuclear ambitions at the expiration of the MoU, he would restart military attacks on Iran. Furthermore, as part of the ongoing negotiations, it has been reported that the United States has proposed that Iran would not enrich any level of uranium for 20 years, and, that if after a specified time has passed, and Iran has fulfilled its ongoing committments, that it would be able to enrich at low levels for non-military purposes that “could never be used by the military.”
As part of the MoU, Iran will receive relief from sanctions as well as the incremental release of its frozen financial assets; however, no funds of any kind will be released if Iran does not fulfill its obligations, including refraining from attempting to re-close the Strait of Hormuz and the disposal or relocation of its nuclear material. Additionally, Trump indicated that he was not in a rush to get the near-bomb-grade fuel out of Iran’s underground sites, where much of it is buried. Trump said that the United States would, at a time to be determined later, work with Iran in “down-blending” the enriched nuclear material, which would bring it to reactor-grade for peaceful energy purposes. Furthermore, as part of the agreement, President Trump has insisted that the United States would ultimately work with Iran to excavate, down-blend, and remove all 12 tons of enriched nuclear fuel that it possesses, while also retaining the right to monitor Iran to ensure that it will not at any further point conduct nuclear work in violation of its commitments.
Given the ongoing precarious nature of the conflict, even with a 60-day ceasefire in place, the Strait of Hormuz will likely reopen gradually, as ships and their insurers may remain wary of transiting it. This conflict has demonstrated that even if Iran never again attacks its neighbors for any reason, the Strait of Hormuz as a transit corridor will permanently retain a higher risk. For this reason, insurance rates may remain relatively high, at least in the interim, and have also led regional energy producers to seek alternative means of transporting their oil, gas, and petroleum exports. For example, Iraq and the United Arab Emirates are accelerating plans to expand oil pipelines, including the Iraqi Kurdistan-Turkey pipeline, which is set to reach 770,000 barrels a day, while the UAE is expected to double export capacity by 2027 via the West-East pipeline to Fujairah on the Gulf of Oman.
The Iraqi cabinet approved plans to accelerate oil exports through the Kurdistan-Turkey pipeline network, which would more than triple existing shipments from 220,000 barrels per day to 770,000 barrels per day. The route offers an alternative passage through Kurdistan to Turkey’s Mediterranean port of Ceyhan. Iraq’s exports virtually dried up as a result of the closure of the strait. Iraq announced on May 16 that it had exported 10 million barrels of oil through the Strait of Hormuz in April, down from 93 million barrels before the war.
If the UAE’s West-East pipeline does come online in 2027, it will double the Abu Dhabi National Oil Company’s (ADNOC) export capacity. Developing alternative export routes requires massive infrastructure investment and significant time to secure permits and transnational agreements, especially when pipelines cross multiple territories. However, the regional war has placed new importance on diversifying energy supply chains and increased the likelihood that they will be prioritized like never before.
Conclusion
The United States and Iran have each announced that a framework agreement has been reached that will be signed in Geneva on Friday, June 19th. The agreement will open the Strait of Hormuz to ship traffic without tolls imposed by Iran, and the United States’ blockade of Iran’s ports will cease. Talks will ensue over the next 60 days regarding Iran’s nuclear program and its plans for enrichment before a final accord is reached. Brent oil prices dropped to $83 a barrel on June 15 and below $80 a barrel on June 16; gasoline prices have dropped to an average of $4.04 per gallon. While the strait will take time to return to normal transit capacity, as ships and insurers remain wary, some Middle East oil exporters are using this period of conflict to justify expanding pipeline capacity and diversifying energy transportation routes around the strait. With the final language of the MoU set to be made public by Wednesday, before the final signing on Friday, June 19th, there are still plenty of unanswered questions, as well as several factors that could derail further negotiations.
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