Iran halts US memorandum, putting 20% of global oil at risk

Iran's decision to halt the US memorandum marks the formal collapse of a preliminary deal that had briefly paused the most severe Middle East conflict in decades.

Iran stopped implementing its memorandum of understanding with the US on July 18, Deputy Foreign Minister Gharibabadi said, citing American violations of commitments and pushing the Strait of Hormuz crisis toward a new phase.

"The US has violated its commitments under the agreement, and as a result Iran has ceased implementation of the memorandum," Gharibabadi said, according to state media reports carried by Xinhua.

The announcement formalizes the collapse of a preliminary deal signed in June that had raised hopes of de-escalation after the surprise US-Israeli attack on Feb. 28 triggered the conflict. Since late June, tit-for-tat strikes have killed at least 46 people in Iran, according to Iranian officials, and drawn in neighboring Gulf states including Kuwait and Bahrain. The US has also restored its blockade on Iranian ports, which had been lifted as part of the interim agreement.

The Strait of Hormuz carried about a fifth of the world's traded oil and gas before the war, and Iran's renewed assertion of control over the waterway threatens to disrupt global energy supplies. Trump has repeatedly threatened to target civilian infrastructure in Iran, at one point vowing to annihilate Iran's "whole civilization" — a red line that, if crossed, could push crude prices sharply higher and trigger a broader flight to safe-haven assets.

From Deal to Collapse

The preliminary agreement reached in June had called for the Strait of Hormuz to be fully reopened, but it also contained language suggesting Iran would manage traffic and potentially charge fees in the future. The US and its allies disputed that interpretation, saying the strait should remain open and toll-free as it was before the war.

The deal began unraveling on June 25, when an Iranian drone struck a cargo ship sailing through the strait. The US responded with strikes on missile and drone locations, and Iran retaliated by attacking a tanker using an alternative route overseen by the US military. Each side accused the other of violating the agreement's terms.

Iran subsequently attacked three ships in the strait, prompting a wave of US strikes that targeted air defense systems, radars and more than 60 small boats used by the Islamic Revolutionary Guard Corps. The US also revoked a waiver that had allowed Iran to sell oil on international markets for US dollars — a key component of the interim deal.

Market Stakes

The escalation carries significant implications for energy markets. Before the conflict, the Strait of Hormuz handled roughly 20 million barrels of oil and liquefied natural gas per day, equivalent to about 20% of global consumption. Any sustained disruption could push Brent crude above $100 a barrel, analysts tracking the region have said.

The last time a similar threat to the strait emerged — during the 2019 attacks on Saudi Aramco facilities — oil prices spiked 15% in a single session. The current crisis involves direct state-on-state conflict between the US and Iran, making the risk premium potentially larger.

Beyond oil, investors have rotated into gold and the US dollar as safe havens, while equity markets in the Gulf region have come under pressure. The VIX, a measure of expected US stock market volatility, has risen as the conflict has escalated.

This article is for informational purposes only and does not constitute investment advice.