Iran Conflict Brief: The US-Iran Deal and a New Phase of Accommodation

**Daniel Sternoff** (0:01)
Events in the Middle East are changing quickly, and the complexities of understanding the global energy landscape grow deeper by the hour. Join me as we talk to leading experts on the latest developments in the region and what it means for the rest of the world.
Welcome to our rapid response series, the Iran Conflict Brief, a special edition of the Columbia Energy Exchange podcast. I'm Daniel Sternoff, a Senior Fellow at the Center on Global Energy Policy.
We are recording this podcast on Tuesday, June 16th at 830 a.m. in Washington, DC., 4 p.m. in Tehran, and 430 and 330 p.m. respectively in Abu Dhabi and Riyadh. The 109-day-old Iran crisis is heading toward an off-ramp in the form of a not-yet-public memorandum of understanding that will immediately reopen the Strait of Hormuz and give Iran some economic benefits, while pushing the nuclear issue and deeper US sanctions relief into the limbo of negotiations likely to extend far beyond an envisioned 60 days.
The MOU reportedly contains no language limiting Iran's missile program or proxy networks and applies a band-aid to halt fighting in Lebanon over Israeli objections. A war that began with President Trump declaring to the people of Iran that, quote, the hour of your freedom is at hand, is winding down with an entrenched, even harder-line Iranian regime with deep governance challenges and severe damage to its military, industrial, and nuclear complexes, but deepened its control over the world's most important energy choke point. There are many losers from this strategically ambiguous conflict, not least the Arab Gulf states. But energy markets are celebrating with an aggressive sell-off. Brent crude, which peaked at $125 a barrel in late April, has tumbled to just over $80 a barrel, only $10 higher than where it traded before the war began. The Dubai market has flipped into a shallow contango, a structure anticipating a rush of near-term barrels. European gas markets have similarly round-tripped from over 60 euros per megawatt-hour to 42, up 10 euros from the start of the crisis. While energy markets are pricing in a normalization in flows, the actual operational future of the strait remains dangerously opaque. Hundreds of vessels remain trapped. Navigable shipping corridors are constricted by mines. Mine clearing operations could take months, and war-risk insurance will remain high until there is confidence in a durable settlement. Global tanker logistics have been scrambled, with vessels tied up in floating storage or diverted to long-haul routes between the Americas and Asia, and until there is a steady flow of outbound and inbound tankers, it will be hard for Gulf producers to fully restore shut-in production. This is the case for both oil and gas. Only a single Qatari LNG vessel has officially crossed the strait, and with European gas storage levels trending at historic lows, it could take months for Qatar's massive LNG infrastructure to return to full capacity. On top of all this, it's not clear how the strait will be managed in practice. Iran has explicitly stated that while it won't levy official tolls during the upcoming 60-day ceasefire window, it will enforce its own regulatory protocols and collect quote service fees for passage, effectively institutionalizing Tehran's coercive leverage over Hormuz. 100 days of this war may be coming to an end, but 47 years of US-Iran hostility may just be changing shape.
I'm joined today by Richard Nephew, Karen Young and Ira Joseph, all experts here at the Center on Global Energy Policy. Given the news over the weekend and the rapidly developing implications, I can think of no one better to give us an idea of what's actually happening. Good morning, Richard, Karen, and Ira. Thanks for joining.

**Richard Nephew** (3:53)
Good morning.

**Karen Young** (3:54)
Thanks, Daniel.

**Daniel Sternoff** (3:55)
I have about 1,000 questions for each of you about the strategic, political, and economic dimensions, and we're all humbled by the fact that we haven't actually seen the agreement that we're analyzing here. But because we're an energy-focused podcast, let's zero in first on some near-term questions around Hormuz. So Karen, let me start with you.
Are energy markets premature in projecting a normalization in flows? What will this MOU actually do? How will vessel traffic be managed if shipping lanes are still choked by mines? What are we to make about Iran insisting that management of the Strait is up to it and the Omanis, but Oman is distancing itself from Iranian proclamations? Will Saudi and the UAE be willing to coordinate vessel traffic with the IRGC?
I have many more questions, but I'd love to hear how you are looking at what you think is actually going to happen here.

**Karen Young** (4:52)
So, as you say, Daniel, with the caveat that we haven't actually seen the text of the MOU, we're recording on Tuesday morning. But still, no matter what the MOU says, my expectation is that no, there is no normalization or return to pre-February 28 traffic patterns. Now, we could see some return of volumes, and the pipelines have been really essential in helping that.