By MTCONTEXT

Negotiations between the US and Iran have reached an impasse. Trump keeps insisting that a deal is coming, which has kept oil markets sanguine. Unfortunately, a diplomatic off-ramp is becoming less likely.

The key difference since the first resolution in April is that both sides are no longer aligned. Iran wants to maintain dominance over Hormuz, while the US wants sweeping concessions. Additional air strikes have accomplished nothing. Given these directly conflicting motivations, a quick resolution is unlikely. The IRGC is prepared to drag out the conflict until Trump leaves office in 2029; time is on their side now.

Supreme Leader Khamenei promoted more hardliners to leadership positions to further discourage negotiating. Shifting their goal away from a settlement toward permanent military resistance.

Iran has also requested war reparations from the US as a condition of negotiations. This is an impossible ask, meant solely to signal disengagement. They are capitalizing on the fact that Trump is answerable to voters and hesitant to commit to a full-scale ground invasion.

Meanwhile, Iran continues to ramp up economic pressure. The Houthis (Iran’s regional proxy) escalated attacks in the Bab el-Mandeb Strait and on Saudi refineries this week, while Hormuz remains closed. They are now discussing with Oman a 5% to 7% cargo fee on ships transiting Hormuz.

Consequently, we think the oil market is underpricing the risk. 

In the long run, the conflict will resolve slowly and unpredictably. A sudden breakthrough would require difficult concessions such as the US granting economic relief without nuclear dismantling, or Iran relinquishing both nuclear capabilities and maritime leverage. Until this equilibrium breaks, we can expect ongoing low-level skirmishes, volatile oil markets, and endless brinkmanship.