Vice President JD Vance and the chief Iranian negotiator, Mohammad Bagher Ghalibaf, did not reach a deal to fully reopen the Strait of Hormuz and end the war during their negotiations in Pakistan. According to the New York Times, the meeting between Vance and Ghalibaf was the highest-level face-to-face engagement between representatives of Iran and the United States since diplomatic relations were severed in 1979 after the Islamic Revolution and the seizure of American hostages. Neither side has ruled out another round of negotiations before the two-week ceasefire ends on April 22.
The United States now plans to enforce a naval blockade of the Strait of Hormuz. Iran has only allowed a few ships to transit the Strait of Hormuz since the beginning of the ceasefire, noting that safe passage was only through a narrow area where they promised there were no mines. Iran has been unable to locate all of the mines it laid in the waterway and lacks the capability to remove them. Iran used small boats to mine the strait last month, soon after the war began. The mines, plus the threat of Iranian drone and missile attacks, slowed the number of oil tankers and other vessels passing through the strait as insurers refused to cover shipments. Only three supertankers carrying oil passed through the strait on April 11 when talks began. Iran left a path through the strait open, allowing ships that paid a toll of around $1 per barrel of oil to pass through. Because the strait is an international waterway, the passage should be free, prompting President Trump to indicate that the U.S. Navy would “seek and interdict” any vessel that paid the fee to Iran. According to President Trump, the United States will send vessels to the strait to clear the mines, and on April 11, two U.S. guided-missile destroyers transited the strait.
A condition of the two-week ceasefire on Iran was the opening of the Strait of Hormuz for the nearly 400 vessels awaiting safe passage. Iran’s effective blockade of the strait, through which 20% of the world’s oil and liquefied natural gas transit, led to global oil prices rising by more than 50% during the conflict, which began in late February. According to the New York Times, Iranian officials claimed that they would only fully open the strait after a final peace deal, despite U.S. demands to open it to maritime traffic during the ceasefire. The other two key issues are the nearly 900 pounds of highly enriched uranium and Iran’s demand that about $27 billion in frozen revenues held abroad be released. President Trump has demanded that Iran hand over or sell its entire stockpile of near-bomb-grade enriched uranium.
The U.S. blockade of all maritime traffic entering and exiting Iranian ports began at 10 a.m. ET on Monday, April 13. Reuters reports that it would be “enforced impartially against vessels of all nations entering or departing Iranian ports and coastal areas, including all Iranian ports on the Arabian Gulf and Gulf of Oman,” according to a U.S. Central Command statement. Vessels transiting the Strait of Hormuz to and from non-Iranian ports would not be impeded. According to Miad Maleki, a senior fellow at the Foundation for Defense of Democracies, a U.S. blockade could cost the Iranian economy $13 billion a month.
According to the New York Times, analysts at JPMorgan Chase claim that the last oil tanker to clear the strait on February 28 is expected to reach port next week, “marking the point at which pre-closure barrels are fully exhausted from the global supply chain.” Brent oil, the international benchmark, rose over $102 a barrel, while West Texas Intermediate, the U.S. benchmark, rose above $104. The average U.S. gas price is about $4.125 a gallon. According to President Trump, the price of oil and gasoline may remain high through November’s midterm elections. GasBuddy reports, via Reuters, that the average price for regular gas at U.S. service stations has exceeded $4 per gallon for most of April, up from below $3 per gallon in February.
The Organization of the Petroleum Exporting Countries (OPEC) lowered its forecast for world oil demand in the second quarter by 500,000 barrels per day due to the war in Iran. Oil production from OPEC+ members averaged about 35.06 million barrels per day in March — a monthly decline of 7.7 million barrels per day. After being damaged by a strike during the war, Saudi Arabia restored the East-West pipeline to its full pumping capacity of seven million barrels per day.
Analysis
Because no deal was reached in Pakistan between the U.S. and Iranian delegations this past weekend, it seems likely that the U.S.-Iran War will continue to escalate, with the U.S. blockading ships entering and exiting Iranian ports. This blockade will burden China due to its large amount of oil imports from Iran. As IER’s Caleb Jasso explains for RealClearEnergy, “Decades of sanctions have left [Iran] with a very limited customer base for its oil, with the majority of it going to China at heavily discounted prices. For this reason, with the possibility of regime change in Iran, China stands to lose a significant portion of its discounted oil supply, especially when combined with the shift in political direction in Venezuela, another vital source of heavily discounted seaborne imports for the Chinese Communist Party.”
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