Washington and Tehran are reportedly exploring a step-by-step agreement that could ease the standoff over the crucial oil transit route.
- Neither side wants to surrender its leverage, with Washington wielding economic pressure and Iran controlling access to Hormuz, Reuters reported.
- Donald Trump has said the U.S. and Iran could reach a deal after the midterm elections in November.
- Gulf states oppose Iranian control of Hormuz but are pushing for de-escalation and a political process to prevent another escalation in the region.
U.S. and Iranian negotiators in New York are reportedly exploring a phased path out of the nearly seven-month conflict that could see Tehran reopen the Strait of Hormuz in exchange for Washington lifting its economic blockade of Iran. The Strait has emerged as the central bargaining chip, with Tehran seeking economic relief and Washington looking at free passage for ships through the global oil route.
Oil prices, however, climbed on Thursday afternoon despite talks of a potential Hormuz reopening, with no agreement reached yet and the standoff between U.S. and Iran still unresolved.
Phased Path Out Of The Standoff
An Iranian official said the most plausible way to break the impasse would be a phased arrangement under which Iran allows navigation through Hormuz in return for the U.S. lifting its economic blockade, with Tehran potentially gaining access to frozen assets, according to Reuters. “One way forward would be to solve the crisis in stages. The first would be to end the blockade and reopen Hormuz,” the official reportedly said on the sidelines of the UN General Assembly.
Leverage Stands In The Way
The talks face a major hurdle, with neither side willing to give up its leverage without securing something tangible in return, according to Reuters. Washington controls the economic pressure weighing on Tehran, while Iran controls access to the critical energy chokepoint.
The arrangement would also require President Donald Trump to accept another temporary fix after an earlier understanding collapsed in July. Trump has said he believes the U.S. and Iran could reach a deal after the Nov. 3 midterm elections.
Midterms Could Shape Deal Prospects
Former U.S.negotiator Dennis Ross said he saw only a 30% chance of an agreement before the vote. “The blockade is what’s really squeezing the Iranians,” Ross told Reuters.
Regional sources told Reuters that Tehran was willing to move its demand for transit fees from the main agreement to a side attachment, as ending the blockade had become the more urgent priority. Gulf states have rejected the proposal, while sources said any arrangement would be temporary.
Gulf States Seek De-Escalation
Gulf leaders have rejected Iranian control of Hormuz and called for freedom of navigation to be restored. At the same time, they have pressed for de-escalation and a political process to avoid further conflict between Washington and Tehran.
A Western official familiar with the talks said, “It is all about opening the Strait of Hormuz. We’re all under pressure domestically, and the Iranians know that.”
USO, UCO, BOIL Climb
At the time of writing on Thursday afternoon, the United States Oil Fund (USO), which tracks West Texas Intermediate, was up around 3%, while ProShares Ultra Bloomberg Crude Oil (UCO) gained 2%. Retail sentiment was ‘bearish’ for USO and ‘bullish’ for UCO.
ProShares Ultra Bloomberg Natural Gas (BOIL) was up more than 12%, while retail sentiment was ‘bullish.’
Crude oil Brent futures (QA_F) were higher by 2%, while WTI crude oil futures (WS_F) had gained 1.8% at the time of writing.
SPY, DIA, QQQ: Retail Sentiment
At the time of writing on Thursday, U.S. equities were trading lower. The SPDR S&P 500 ETF (SPY) was down 0.04%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) had declined 0.3%. The Invesco QQQ Trust ETF (QQQ), which tracks the Nasdaq-100, was also lower, down 0.09%.
Stocktwits retail sentiment for SPY was ‘extremely bullish,’ while sentiment for DIA was ‘neutral’ and for QQQ was ‘bullish.’
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