Strait of Hormuz Safe Passage Becomes Make-or-Break U.S.-Iran Issue

A U.S.-Iran Hormuz deal would first need to resolve safe passage through the Strait of Hormuz, the issue at the center of negotiations between Washington and Tehran. Crude oil flows through the strait have swung sharply, nearing prewar levels during a recent surge before falling back once tankers came under attack again. With the two sides still apart on key terms, every signal from the talks feeds straight into how much oil can reliably move through the strait. So what would it actually take to get those barrels moving with confidence again?

Alex Hodes, StoneX Director Energy Market Strategy, advises commercial energy clients on price risk management and hedging across crude oil, refined products and related markets, and authors StoneX energy commentary. He tracks U.S. and global supply flows, inventory balances and refinery run rates, which makes shipping through the Strait of Hormuz and the diplomacy around it a core part of his coverage.

Key Themes from the Discussion

• Safe passage through the Strait of Hormuz sits at the center of U.S.-Iran negotiations.
• Strait of Hormuz oil flows swing sharply day to day, nearing prewar levels before falling back.
• Lost Iranian crude revenue and approaching U.S. midterm elections add pressure to reach a deal.

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Safe Passage Through the Strait of Hormuz Anchors U.S.-Iran Talks

Hodes ranks safe passage through the Strait of Hormuz, along with questions over control and transit fees, as the most important topics in the U.S.-Iran negotiations. Notably, some ship owners are still venturing through the Strait of Hormuz even without an agreement in place. For Washington in particular, the goal, Hodes says, is to make sure "these price pressures are reduced in any way possible", and that means safe transit through the strait. A deal that guarantees safe passage would therefore matter less for getting some tankers through and more for getting enough of them through with confidence. For commercial buyers of crude oil and diesel, that is the difference between occasional relief and supply they can plan around.

Hormuz Oil Flows Stay Volatile Without a U.S.-Iran Agreement

Strait of Hormuz oil flows change from day to day, swinging between surges toward prewar levels and sharp drops when tankers come under attack. Hodes points to a recent surge, when reports suggested flows were almost back to prewar levels, before renewed attacks on tankers caused them to trickle down again. As a result, a single strong day of Hormuz transit data is a weak guide to what comes next, and volatility is the one constant Hodes sees in those flows. So when does that volatility end? "Until you are able to have peace and some agreement on both sides, you're not going to see those flows hit what they were prewar", Hodes says.

Iranian Revenue Losses and U.S. Midterms Raise Pressure for a Deal

Pressure to close a U.S.-Iran deal on the Strait of Hormuz is building on both sides, even as the two governments remain apart on key red lines. According to Hodes, "there is some pressure on the Iranian side because their crude oil flows have been disrupted substantially", cutting into the revenue Tehran had been earning before. In Washington, the approaching midterm elections raise the urgency of getting a deal done. Despite that pressure, much of the negotiating happens behind closed doors, with occasional signals from the administration that a deal is close followed by responses from the Iranian side. For energy markets, the outlook for Hormuz flows stays tied to headlines that can shift sentiment quickly while the gap between the two sides persists.

 

--- Written by Gus Farrow, Senior Manager, StoneX Media

--- Expert: Alex Hodes, StoneX Director Energy Market Strategy