(Bloomberg) — Iran has moved to restrict ship traffic in the Strait of Hormuz in response to an ongoing U.S. naval blockade, undermining prospects for a peace deal recently announced by President Donald Trump.
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The Islamic Republic notified ships on Saturday that the waterway was closed to maritime traffic, and a supertanker reported hearing gunshots, said ship owners in the area who asked to remain anonymous due to the security situation.
Chaos in the Strait of Hormuz, through which about a fifth of the world’s oil and liquefied natural gas passed before the US-Israeli war against Iran began in February, broke out a day after Iran said the waterway would reopen to commercial ships. Earlier in the day, Iran rejected a US request to maintain the naval blockade until the agreement is signed, calling it “banditry” at sea.
The developments have dashed growing optimism that the sides were nearing a broad agreement to end a seven-week war that has claimed thousands of lives and disrupted energy exports from the Persian Gulf.
President Trump on Friday said a deal with Iran could be close, adding that he would work with Iran to save the country’s “nuclear dust.”
But the country’s Foreign Ministry spokesman, Esmail Baghaei, told state television that enriched uranium “is as sacred to us as Iranian soil and will not be transferred anywhere under any circumstances.”
The material, which the United States says was buried underground after it bombed Iran’s nuclear facilities during last year’s 12-day war, is at the center of efforts to end the conflict and its fate is at the center of a broader deal.
Momentum was building for a lasting peace, with Tehran saying on Friday that Hormuz was open to commercial shipping after Israel agreed to a ceasefire in Lebanon.
Cracks began to appear on Saturday with Iran’s criticism of the ongoing US blockade.
Shortly afterwards, Islamic Revolutionary Guard gunboats approached a tanker and said the ship and its crew were safe before shots were fired, the UK Navy said.
Several oil tankers made a U-turn on Saturday after trying to pass through the narrow waterway. It was not immediately clear why they changed route.
Others still tried to seize the opportunity provided by the Friday announcement. FPMC C Lord, a very large crude carrier loaded with Qatari and Saudi crude oil, sailed south of the Iranian island of Larak and headed for the Gulf of Oman mid-Saturday, stating its destination was Fujairah in the United Arab Emirates.
A handful of other oil carriers also dot the waterway. Earlier, three LNG carriers and an oil product tanker (some approved by the US) headed east towards the Gulf of Oman, with a Pakistani-flagged product tanker following close behind. Several LNG ships were also approaching the strait.
“While a deal that could end the current round of U.S.-Iran hostilities and reassure energy markets is on the horizon, it is unlikely to result in a full or lasting peace,” Bloomberg Economics analysts including Jennifer Welch wrote in a report. “We assess that any agreement would be limited and fragile.”
Trump told Bloomberg in a phone call on Friday that Iran had agreed to suspend its nuclear program indefinitely and that “most of the major points” in negotiations with the country had been finalized.
He denied that the United States would release any frozen funds to the Islamic Republic; This was an important demand that Tehran had long rejected.
While returning to Washington from an event in Phoenix, Trump said separately about the possibility of reaching a deal with Iran: “I think it’s something that needs to happen. It’s something that makes sense to happen. And I think it will happen. We’ll see what happens.” “I think this will be very useful. And the most important thing is that Iran does not have nuclear weapons.”
The president also threatened to resume attacks against Iran after the current ceasefire ends next week. “Maybe I won’t extend it, so you have a blockade and unfortunately we will have to start dropping bombs again,” he said.
Trump’s comments and Tehran’s statement on Hormuz on Friday were the latest signs that the two sides are working on a deal behind the scenes after a first round of direct talks in Pakistan last week failed to reach an agreement.
The war saw Iran retaliate against US bases in the region and strike oil and gas infrastructure belonging to American allies in the Gulf, triggering a global energy crisis.
GLOBAL REACTION: US-Iran Deal on the Horizon — Lasting Peace Still Far Away
Oil, fuel and natural gas prices have fallen on hopes that recent developments will mean an end to the war and more energy supplies can pass safely through Hormuz. Brent crude fell 9 percent to $90 a barrel on Friday, erasing most of the gains it had made since the start of the war. Diesel prices have also fallen in the US and Europe.
In a notable change, real-world oil prices have also fallen significantly alongside headline futures prices. Brent, the world’s most important physical price, fell below $100 per barrel on Friday for the first time since March 11. Stocks extended their rally on speculation that the war would soon end.
According to Axios, citing two US officials and two additional unnamed sources about the talks, one of the proposals discussed is for the US to release $20 billion in frozen Iranian funds in exchange for Tehran giving up its enriched uranium stockpile.
Trump shot down the idea in the phone call, repeatedly saying “no” when asked if he would release $20 billion.
Pakistani and US officials have suggested that a new round of talks is on the way. Asked whether he would go to Pakistan to sign an agreement, Trump replied, “I can.” Iran announced that it has not yet agreed to participate in a new round of negotiations.
Many traders and analysts remain skeptical that meaningful crude oil flows can resume quickly. The US said earlier this week that the blockade of ships going to and coming from Iranian ports continues.
In the phone call, Trump said the US-Iran talks were a “completely separate agreement” from the Lebanon ceasefire. Still, Israel’s military campaign against Iran’s proxy Hezbollah in southern Lebanon posed a major obstacle to a broader agreement. The ceasefire continued on Saturday.
–With help from Sara Gharaibeh.
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