Hormuz, not sanctions, remains Iran’s ultimate red line

The collapse of the US-Iran MoU after just three weeks is a clear indication that the US administration treated Iran's control of the Strait of Hormuz as a transactional dispute that could be resolved by financial inducements. While financial concessions were an essential part of Iran’s demands, its absolute redline was maintaining control over the Strait. Therefore, when Iran realised that the US had begun routing ships closer to the coast of Oman to bypass and gradually weaken Iranian authority, it began attacking vessels even before the funeral ceremonies of the late Ayatollah were completed.

Following massive US attacks aimed at diminishing Iran's coastal military assets, Iran retaliated against US positions in the Gulf, Jordan, and Syria. President Trump has further threatened to escalate next week by targeting Iranian bridges and power stations, having already revoked sanctions relief on oil exports and blockaded Iranian ports. He also said that he would capture the Kharg island from where Iran exports 90% of its oil.

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In response, Iran has threatened to strike Gulf infrastructure and disrupt regional oil and gas exports. The Houthis reportedly attacked a cargo ship in the Red Sea last week. While they remained quiet during the 39-day war, they are capable of disrupting the Saudi oil flow by targeting the East-West pipeline, as they have demonstrated in the past. Consequently, if Iran were to choke the flow of oil and gas through both the Strait of Hormuz and Bab el-Mandeb, the narrow passageway connecting the Red Sea to the Arabian Sea, it would disrupt global energy markets to a far greater degree than before the signing of the June 17 Memorandum of Understanding (MoU).

Although oil prices during the 39-day war briefly touched $120 per barrel, they largely remained around $100 due to factors such as the release of strategic oil reserves and reduced Chinese imports. However, if the Strait and the Red Sea were to remain closed for several more weeks, prices would shoot up, severely impacting the global economy, driving up US gasoline prices, and fuelling inflation.

On Friday night, the US had attacked some bridges and railways in Iran, which it responded to by damaging a power plant and a desalination plant in Kuwait. However, significantly expanding US strikes on Iranian civilian infrastructure carries massive geopolitical risks. Trump would face severe pressure from his Gulf partners, who are desperately trying to avoid further regional escalation because it is they who ultimately pay the price of Iran’s retaliatory attacks. Trump will also be loath to execute the threat of taking over Kharg Island, as doing so would necessitate deployment of US ground troops with the inevitability of casualties.

Despite Trump’s maximum pressure tactics, Iran has not surrendered its control over the Strait of Hormuz. The US is well aware that it cannot militarily force Iran to capitulate, a goal it could not achieve despite massive and sustained air campaigns during the 39-day war. While the previous two-month naval blockade caused severe economic hardship in Iran, its only tangible outcome was the short-lived MoU. This time around, however, Iran had utilised the three-week window after the signing of the MoU to sell its oil and replenish its domestic storage, placing it in a much stronger position to endure renewed economic pressure.

In a war of attrition between the economic naval blockade and the closure of the Strait, the Hormuz clock will run out faster as Iran simply possesses a greater capacity to endure pain, reinforced by a wave of national rejuvenation following the massive and highly organised funeral of the late Ayatollah.

Iran is also aware that with each passing week, Trump will come under increasing pressure due to the impending midterm elections in November and the urgent need to bring down gasoline prices and inflation. It is equally aware that its bargaining position will be weakened once the November elections are over.

Further escalation and a prolonged war are not in the interest of either the US or Iran, which is precisely why they originally agreed to the MoU after extensive discussions. The current crisis stems primarily from both sides resorting to military action to enforce their viewpoints rather than sitting down to find a diplomatic way forward. For instance, the MoU explicitly provides for a joint mechanism between Iran and Oman, in consultation with other Gulf states, including Iraq, to manage the administration of the Strait. This regional forum could be convened posthaste to negotiate a viable solution, which will inevitably require conceding more operational room to Iran. If such a framework is unanimously endorsed by all regional actors, it would provide the US with a crucial off-ramp.

The release of Iranian-American national Dena Karari three days ago served as a rare diplomatic 'olive branch' from Iran during a week of severe military escalation. While the release was primarily motivated by Iran’s need to avoid Karari dying in custody due to her rapidly deteriorating health, Trump publicly thanked Iran on social media despite the active hostilities. He hailed the decision to let Karari return home as a welcome 'gesture of goodwill’.

Meanwhile, there are indications that the US vice president is actively working to get negotiations back on track. Given the deep mistrust that has plagued US-Iran relations for the last 47 years, further exacerbated by the recent collapse of the MoU, reviving a diplomatic path will require nimble and swift diplomacy, which is needed urgently.

(The author is a former Governor of India to the International Atomic Energy Agency (IAEA) in Vienna, as well as a former Ambassador to Egypt and former Permanent Representative to the Arab League. The views expressed in this piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)