Not done yet

Iran and Oman just agreed on the coordinates of a shipping corridor through the Strait of Hormuz. It’s not a signed deal yet, the joint statement is still in final drafting, but it’s the clearest sign yet that the waterway carrying roughly a fifth of the world’s oil could reopen in a meaningful way. Here’s why the details matter more than the headline: (1) Iran wants to retain operational control: security, de-mining, and maritime services handled by Tehran. That’s effectively a toll booth by another name, and it’s a red line for Washington. The U.S. has said it won’t accept any arrangement that includes fees for passage through what it considers international waters. (2) Even Iran admits this agreement alone doesn’t make the strait safe. Tehran says real security depends on the U.S. lifting its naval blockade and halting strikes on Iranian infrastructure, something that hasn’t happened. (3) So we have three moving pieces that all need to align before oil actually gets a durable “all clear”: a signed Iran-Oman framework, a resolution on the fees question, and a U.S. blockade drawdown. Right now we have zero of the three fully resolved. The oil market context makes this higher stakes than it would’ve been a few years ago. Brent has climbed from ~$67 to ~$79/barrel since February as the closure and now the war premium built in. Meanwhile the world’s shock absorbers are thinner than usual: (4) The U.S. SPR has fallen to its lowest level since 1983 after a 172-million-barrel emergency release earlier this year, one of the largest coordinated IEA drawdowns on record. (5) OECD strategic reserves overall are historically low, even as China has kept quietly building the largest strategic stockpile in the world. That combination, a partial, unconfirmed diplomatic fix layered on top of depleted global reserves, is exactly the setup that makes oil prices swing hard on headlines. A confirmed signature with a real blockade rollback could pull real risk premium out of the market fast. A stall, a fees dispute, or a resumption of strikes could just as easily send it the other way, and this time the world has less spare capacity in storage to cushion the blow. We’re not done yet.

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