The three deal-breakers that could derail US-Iran peace

Following a 48-hour delay due to Iran’s demand for a halt to Israeli military operations in Lebanon, the inaugural High-Level Committee meeting — the Lake Lucerne Summit — finally took place last Sunday as a follow-up to the MoU signed by Presidents Donald Trump and Masoud Pezeshkian last week. The meeting was attended by US Vice President JD Vance and Iranian Parliament Speaker Mohammad Ghalibaf, with the Prime Ministers of Qatar and Pakistan participating as mediators.

Despite several fraught moments, the meeting yielded some substantive outcomes. These included a 60-day operational roadmap, a hotline between the US and Iran to ensure the smooth passage of commercial vessels through the Strait of Hormuz, and the creation of a real-time de-confliction cell — comprising the US, Iran, Lebanon, Qatar, and Pakistan — to address ceasefire violations in Lebanon. In addition, working groups focusing on nuclear issues, sanctions, reconstruction, as well as monitoring and dispute resolution, have been established.

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These outcomes became possible after the US Treasury approved the waiver for the export of Iranian oil and allied products while the discussions were ongoing in Switzerland. In addition, the US side confirmed to Iran the commencement of the release of its $12 billion in frozen funds in Qatar. Most importantly, under US pressure, the Israel Defence Forces (IDF) not only declared that they would limit their operations in Lebanon to defensive purposes but also refrained from launching any major attacks in southern Lebanon.

However, as is typical in such negotiations, each side is highlighting its ‘successes’ for domestic consumption, only to be quickly countered by the other side. The US has been emphasising that Iran has agreed to invite IAEA inspectors, suggesting that they will return to the nuclear facilities bombed by the US and Israel during the 12-day war in June 2025, where Iran has blocked inspections ever since. Iran’s response was that there would be no change to current IAEA inspections for now, which remain limited to its nuclear power plant at Bushehr, the research reactor in Tehran, and a few other facilities. Ultimately, however, Iran is expected to include the bombed nuclear facilities at Natanz, Fordow, and Isfahan, as well as the Khondab Heavy Water Research Reactor, as part of the final deal negotiations.

Regarding the release of Iran’s frozen funds, the US is emphasising that the released amounts will be used by Iran solely to purchase agricultural produce and medicine from the US, benefiting American farmers. This strategy aims to avoid domestic criticism that Tehran is receiving substantial sums to bolster its military and strengthen Hezbollah, Hamas, the Houthis, and Iraqi militias. This narrative is important, as both Trump and Republicans severely criticised the Obama administration’s release of $1.7 billion when the JCPOA (Joint Comprehensive Plan of Action) was concluded in 2015 — an amount that had been frozen in US banks since the 1979 Iranian Revolution. However, Iran insists that it alone will decide how the funds are used.

While such issues will continue to be discussed and resolved, for the world, the most important development is the reopening of the Strait of Hormuz, with a substantial increase in the movement of vessels over the past few days, marking the busiest period of traffic since the commencement of Operation Epic Fury on 28 February.

But what are the deal-breakers?

The ceasefire in Lebanon is number one. The Israeli public, and particularly Prime Minister Netanyahu, are deeply unhappy with the MoU and recent developments. Israel is being forced to halt offensive operations in Lebanon and partially withdraw the IDF. While Netanyahu will likely do his best to derail the negotiations through escalation in Lebanon, it will not be as easy as it was to dismantle the JCPOA. This time, he must contend with Trump and MAGA Republicans. Trump is pleased that Brent crude is trading at around $76 per barrel today, compared with $72 just before the war, while US petrol prices have fallen below $4 per gallon and the stock market has rallied by 12 per cent from its wartime low. Facing depleted military assets, fast-approaching midterm elections, and roughly 70 per cent of Americans opposing a resumption of the war, Trump is expected to prevail over Netanyahu, at least until the November elections.

The second deal-breaker is Iran’s insistence on establishing a degree of control over maritime traffic through the Strait of Hormuz. Under the MoU, Iran’s agreement not to levy charges is limited to a 60-day period. Furthermore, the MoU provides for a dialogue between Iran and Oman “to define the future administration and maritime services in the Strait of Hormuz, in discussion with other Persian Gulf littoral states, in line with the applicable international law and the sovereign rights of coastal states of the Strait of Hormuz”.

A striking aspect of this wording is that while Iran and Oman will “define the future administration”, the remaining Gulf states will only be included in the “discussion”. The MoU also explicitly recognises the “sovereign rights of coastal states of the Strait of Hormuz”, a status that applies exclusively to Iran and Oman. Thus, the MoU has implicitly conceded the rights of Iran and Oman to exercise administrative control over the waterway. However, while the two nations have recently established a Joint Working Group to draft a permanent agreement on the future administration of navigation, it remains highly unlikely that Oman will support Iran’s insistence on levying mandatory insurance fees on passing vessels.

The third is the nuclear issue. In the negotiations preceding the two wars last June and this February, Tehran was willing to concede the suspension of uranium enrichment for a specified period, the dilution or transport of the 440 kg of 60 per cent enriched uranium to a third country, IAEA inspections similar to the stringent regime under the JCPOA, including implementation of the Additional Protocol, and an agreement for an indefinite period in return for guarantees against any future attacks by the US or Israel and the lifting of US sanctions.

A resolution of the nuclear issue to the satisfaction of both the US and Iran is well within the realm of possibility. This is particularly true because Iran stands to gain substantially from the lifting of primary sanctions on its oil exports, marking the first time such relief has been granted since 1979, even if it is initially restricted to a 60-day window. Furthermore, the secondary sanctions first imposed in 2011, which were briefly lifted during the lifespan of the JCPOA from 2015 to 2018, have also been rolled back. For Tehran, this relief means it will no longer be forced to sell its crude at an estimated 10 per cent discount on the grey market.

Historically, Iran’s energy sector has struggled to recover from periodic shocks. Its oil production infrastructure was heavily damaged during the Iran-Iraq War (1980-1988), causing exports, which once exceeded 5 million barrels per day (bpd), to plummet. Following the conclusion of the JCPOA, exports temporarily peaked at around 2.4 million bpd, only to fall sharply following the US withdrawal in 2018. Annual export averages were roughly 440,000 bpd in 2020 before gradually recovering to average between 1 million and 1.5 million bpd in the years leading up to the current war, with oil sold at discounted rates. In addition, Iran stands to gain from the release of its frozen assets — estimated at approximately $120 billion — alongside a proposed $300 billion reconstruction fund, which Tehran hopes will be backed by its Gulf neighbours. Taken together, these economic benefits provide Iran with an incredibly strong financial incentive to keep the current negotiations on track and, where necessary, rein in Hezbollah.

However, given the turbulent two months required just to finalise the MoU, there is only cautious optimism that a framework deal can be concluded within the current 60-day interim period. Drafting a comprehensive, detailed agreement thereafter will inevitably require several additional months.

(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.)