What the US-Iran peace deal means for the Strait of Hormuz

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No region of the world produces more oil and gas than the countries straddling the Persian Gulf. Most of this energy can only be exported aboard tankers that cross the Strait of Hormuz – a waterway that’s effectively been closed for more than three months since the US and Israel started a war against Iran in late February.

The disruption has rippled through the global economy. Supplies of oil, gas and other commodities have been squeezed, pushing prices far higher than before the war.

There’s hope this might soon change. On June 15, the US and Iran announced an interim deal to halt the war and reopen the strait, with a formal agreement to be signed on June 19.

The announcement was met with cautious optimism in energy and shipping markets, but major questions about how the waterway will be reopened and what rules will govern the passage remain unanswered. 

The war has also exposed the fragility of the route, fuelling debate over whether global energy trade can remain so heavily dependent on a single chokepoint.

What’s the significance of the Strait of Hormuz?

Situated between Iran to its north and the United Arab Emirates and Oman to its south, the Strait of Hormuz connects the Persian Gulf to the Indian Ocean. It’s around 161km long and 39km wide at its narrowest point. The shipping lanes in each direction are just two miles wide.

The strait is an essential route for the energy market, handling around a fifth of the world’s oil and liquefied natural gas supply. Saudi Arabia, Iraq, Iran, Kuwait, Bahrain, Qatar and the UAE all ship crude through Hormuz in normal times, and the majority of their cargoes go to Asia. 

Gulf countries are also home to refineries that produce large volumes of diesel, jet fuel, naphtha – used to make plastics and petrol – and other petroleum products that are exported globally via the strait. 

Beyond energy, Hormuz is a chokepoint for products including aluminum, fertilizer and even helium, which is used in the production of semiconductors. 

How has the Iran war affected shipping through the Strait of Hormuz? 

Ship traffic through the Strait of Hormuz has slowed dramatically since the war began. The average number of daily ship transits through the waterway has dropped to fewer than 10 vessels a day, down from around 135 in peacetime. The collapse in traffic has also forced the region’s oil producers to halt most of their output as they run out of space to store their crude. 

The strait’s effective closure stemmed largely from Iran’s response to the US and Israeli attacks on its territory. In addition to launching retaliatory strikes, Tehran imposed severe restrictions on shipping through Hormuz and intermittently attacked vessels in and around the Persian Gulf. The safety risks became so high that most ship owners stopped sending vessels through the passage.

Some vessels have nevertheless continued to brave the journey, in some cases turning off their transponders in an effort to avoid detection. There’s also evidence that the US military has quietly helped guide some vessels through the waterway. Iran, meanwhile, has allowed certain ships to transit via a corridor close to its coastline, often after negotiations over safe passage and, in some cases, requesting payments of as much as US$2 million (S$2.56 million).

The disruption deepened in mid-April, when the US issued a blockade on Iran-linked ships in the Gulf of Oman to pressure Iran into reopening the waterway. Iran resisted, however, and in May expanded its claimed area of control around the strait and created a new entity, the Persian Gulf Strait Authority, to control crossings. Iranian officials have also discussed establishing some form of permanent toll system in coordination with Oman, which lies south of the strait. 

Tensions escalated further in early June when US forces fired on several ships in the strait, including an oil tanker Washington claimed had violated its blockade. Three Indian sailors were killed in the incident.

What does the US-Iran deal mean for the Strait of Hormuz? 

As part of the interim peace deal, the US and Iran have agreed to stop attacking each other and to reopen the Strait of Hormuz “immediately” once the deal is officially signed. Iran is also expected to receive some relief from oil sanctions at a later stage. 

Yet many of the most important details – including how the strait will reopen, what restrictions might remain in place and who will regulate traffic – have not been made public. Iran said shipping through the strait would be regulated by Tehran and Oman, suggesting it may seek to retain some control over the waterway rather than simply returning to the prewar status quo. The deal between the US and Iran also sets in motion 60 days of negotiations over the future of Iran’s nuclear programme, underscoring the interim nature of the deal.

The agreement is therefore unlikely to lead to an immediate resumption of regular pre-war traffic. Shipowners will need confidence that any vessels they send into the Persian Gulf will be able to get out safely, without lengthy delays or new transit fees. A backlog of ships waiting to transit the waterway could also take weeks to work through.

Does Iran have the right to control the Strait of Hormuz? 

Under the United Nations Convention on the Law of the Sea, countries can exercise sovereignty up to 12 nautical miles from their coastline – an area known as their territorial waters. 

The Strait of Hormuz runs through the territorial waters of Iran and Oman. However, nations must allow “innocent passage” of foreign vessels through their territorial waters and must not impede “innocent” or “transit passage” through straits used for international navigation. The treaty also says that countries cannot charge foreign ships merely for passage through their territorial waters.

While Iran’s government signed UNCLOS in 1982, its Parliament never ratified the treaty.

Can oil producers bypass the Strait of Hormuz? 

Kuwait, Qatar and Bahrain have no other viable routes for their exports. 

Saudi Arabia, which ships the most oil through Hormuz, has rerouted its crude through a pipeline that runs westward to the Red Sea port of Yanbu. It exported 3.65 million barrels a day of crude from Yanbu in May, which amounts to just over half of what the nation’s oil shipments were in January, the last month of unaffected exports before the Hormuz closure. While the pipeline can transport 7 million barrels a day, some of the oil is reserved for domestic use and the route itself has been targeted by Iranian strikes.

The UAE can also bypass Hormuz via a pipeline linking its oil fields to the port of Fujairah along the Gulf of Oman. But it can carry less than half the country’s usual export volumes, and infrastructure at both ends has come under attack. State-owned Abu Dhabi National Oil is accelerating construction of a second pipeline to double export capacity out of Fujairah by 2027.

Iraq has few viable alternatives. A pipeline to Turkish Mediterranean port isn’t currently linked to the country’s major southern oil fields, while plans to revive shipments through neighboring Jordan and Syria would handle only a fraction of volumes normally shipped through Hormuz.

The disruptions have also prompted Asian countries – among the most heavily reliant on Middle Eastern supply – to scour elsewhere, including the US, for oil. While those alternatives are often more expensive, many importers have been willing to pay elevated premiums to secure supplies. The crisis has also exposed the risks of relying too heavily on a single trade route, potentially accelerating efforts to diversify sources of crude even after the strait reopens. Bloomberg