A 60-day provisional agreement the United States and Iran signed on the 17th last month is wobbling again after 20 days. Qatar and Saudi Arabia on the 7th (local time) identified Iran as the party that carried out successive attacks on three merchant ships in the Strait of Hormuz. One of the struck vessels was a liquefied natural gas (LNG) carrier from mediator Qatar, which brokered indirect U.S.-Iran talks six days earlier. The United States responded hard the same day by revoking permission to sell Iranian oil and launching airstrikes on Iranian military facilities.
According to the United Kingdom Maritime Trade Operations (UKMTO) under the British navy on the 7th, the LNG carrier Al Rekayyat, owned by Qatar's state shipping company Nakilat, was hit by a projectile fired by a drone into the portside engine room in waters near Lima, Oman, and suffered fire damage. The crew all evacuated, but additional damage is expected because if the fire spreads to the LNG on board, the ship could explode. Qatar's Foreign Ministry immediately summoned the Iranian chargé d'affaires to deliver a protest note, calling it "a serious and clear violation of international law." The same day, two other merchant vessels, including the Saudi-flagged very large crude carrier Wudyan, suffered similar damage from projectile strikes. The International Maritime Organization (IMO) said, "Three ships hit in a day is the highest level since late April."
Qatar is the mediator that shuttled between U.S. and Iranian delegations in Doha for two days on the 1st of this month to arrange indirect talks. At the time, the two sides discussed vessel passage in the strait and the unfreezing of Iranian funds. The next meeting has been postponed until after the burial of former Supreme Leader Ali Khamenei on the 9th. But six days after the talks, with Iran attacking a Qatari vessel, Qatar shifted from mediator to an aggrieved party holding Iran accountable. As Qatar, which had brokered the talks, became a victim of attack in six days, assessments emerged that even the diplomatic basis for the U.S.-Iran indirect talks had begun to shake.
Iran did not officially acknowledge whether it carried out the attacks. However, Iranian state television reported that "Al Rekayyat was attacked for ignoring repeated warnings." Esmail Baghaei, the Iranian Foreign Ministry Spokesperson, also said on the 7th that "merchant ships transiting the strait without Iranian authorities' support face serious risk."
Behind Iran's willingness to risk worsening ties with a mediator lies anxiety that it could lose control of the strait if the southern route expands. All three struck ships used the southern route closer to the Omani coast rather than the northern route designated by Iran. Iran currently allows only pre-registered vessels to use the northern route. The United States and Oman are independently supporting a southern route that can be used without Iranian authorization. Market intelligence firm Kpler tallied that recently two-thirds of ships transiting the strait used the northern route and the rest used the southern route.
From Iran's perspective, if the southern route becomes more established, it will be hard to control ship movements unless it fully closes the strait. If it loses control of the strait, Iran's leverage to win full U.S. permission to sell oil and further ease economic sanctions weakens. The Wall Street Journal (WSJ) said on the 7th, "The attacks exposed Iran's anxiety that it could lose its grip on Hormuz."
As Iran asserted control over the strait by attacking merchant ships, the United States immediately countered by clawing back economic rewards and deploying military force. The U.S. Treasury on the 7th, right after the merchant ships were hit, revoked a general license that had allowed sales of Iranian crude and petrochemicals. The license, issued on the 22nd last month, had been valid until Aug. 21. The Treasury also moved up the deadline, telling parties to wind down existing Iranian oil transactions within ten days, by the 17th. The Trump administration has operated the end-of-war agreement with Iran by granting and withdrawing rewards based on implementation performance. A U.S. government official told Reuters, "The memorandum of understanding is entirely performance-based" and said, "Iran must behave properly to receive benefits."
Hours after revoking oil sales permission, U.S. Central Command said it would "exact a heavy price for targeting merchant ships carrying civilians" and began airstrikes on Iran. A U.S. government official told NBC that U.S. forces targeted air defenses and coastal surveillance facilities around Hormuz, anti-ship cruise missile and drone launch sites, and port military facilities. Iranian state media reported explosions were heard in Bandar Abbas, Sirik, and Qeshm Island. Another U.S. government official told CNN, "This is punishment. It will not end for the time being."
However, some said the United States' simultaneous move to wield oil licensing and military retaliation clearly exposed the weakness of the so-called "performance-based truce," which gives rewards if the deal is kept and immediately withdraws them if it is violated. Last month's memorandum of understanding lacks provisions for a body to jointly determine violations or for dispute resolution procedures. Iran's Foreign Ministry countered the same day that "responsibility for breaking promises lies with the U.S. government." Iranian Deputy Foreign Minister Kazem Gharibabadi argued that the oil license revocation and the airstrikes each "violated provisions of the memorandum of understanding," the Washington Times reported.
As both sides claimed the other broke the deal first over the same incident, the diplomatic clash quickly spilled into instability in shipping and energy markets. The Joint Maritime Information Center (JMIC), led by the U.S. Navy, on the 7th raised the risk level for Hormuz transits from "considerable" to "severe," near the highest tier. The center warned, "Under current conditions, the likelihood of intentional hostile acts by Iran is high." Maritime intelligence firm Windward tallied that crude exports transiting the strait averaged 4.3 million barrels a day last month, less than one-third of the 15 million barrels before the war. Even after the provisional deal, transiting vessels remained at only one-fifth to one-third of prewar levels.
Brent crude rose $1.86 to $72.85 a barrel (about 110,000 won) on the day from the prior session. It is rising further in after-hours trading, especially after news of the oil license revocation and the airstrikes. European natural gas prices also jumped as much as 6% intraday. Michelle Wijee Bokman, senior maritime intelligence analyst at Windward, told CNBC, "The merchant-ship attacks are clearly a fight over control of the strait," adding, "The strait is far from fully functional."