US-Iran Negotiations on the Brink: Escalating Tensions and Global Oil Market Risks
In the midst of negotiations between Washington and Tehran aimed at achieving a 14-point peace agreement, tensions have escalated even before the 30-day deadline within the 60-day process expires. Both parties have violated the terms of the Memorandum of Understanding (MOU), leading to increased tensions in the global oil market.
Violations and Reactions from Both Sides
Specifically, US Central Command (CENTCOM) and President Donald Trump have accused Iran of violating the MOU by attacking commercial vessels in the Strait of Hormuz, implementing approved shipping routes, and threatening to impose transit fees. In response, the US military has continued and expanded nightly airstrikes against Iran, thereby violating the same agreement.
Tehran has declared that the MOU has been terminated, with chief negotiator Mohammed Ghalibaf stating that Iran is engaged in an "essential and existential war with the United States."
Oil Market Predictions
With less than 30 days remaining in the negotiation period, the question arises: what will happen to the global oil market? A high-level source in Washington noted: "The 60-day timeframe isn't the most important number. November 3rd, when the midterm elections begin, is the decisive date." President Trump wants to avoid becoming a 'lame duck' president and needs to achieve decisive results with Iran to keep gasoline prices at an acceptable level amid the election context.
| Oil Price Increase (USD/barrel) | Gasoline Price Change (cents/gallon) | Consumer Spending Impact (billion USD/year) |
|---|---|---|
| 10 | 25-30 | 1 |
Historical data shows that for every approximately $10 increase in oil prices per barrel, gasoline prices rise by about 25-30 cents per gallon. Particularly, for every 1-cent increase in gasoline prices, over $1 billion in consumer spending is lost, causing damage to the economy.
Iranian Pressure and Potential Countermeasures
Iran understands the constraints the US is facing, therefore they benefit from increasing military actions without crossing the threshold that would force a strong US response. "When oil prices rise again, Iran is reminding us of what could happen if the conflict escalates," the Washington source stated.
Measures to prevent disruptions in the Strait of Hormuz, through which about one-third of global oil is transported, cannot be implemented immediately. The US oil industry is already pumping at record high levels, and releasing additional oil from the strategic reserves of International Energy Agency member countries would also face difficulties.
New Tensions in Saudi Arabia
Last week's missile and drone attack on Abha International Airport in Saudi Arabia, carried out by Iran-backed Houthi forces, sent a strong message to Washington, reminding them that Iran could close the Bab-el-Mandeb strait, through which approximately 10% of global oil passes daily.
Iran's Ultimate Goals
By the end of the MOU negotiation period, Iran's goal is to have nearly all of their initial 14-point demands met, including: Israel withdrawing from Lebanon, the US leaving the Hormuz strait area, complete lifting of international sanctions, and the $300 billion in construction funds promised to Tehran.
These factors could eliminate the threat from the United States to the Islamic Revolutionary Guard Corps (IRGC), an organization that plays a crucial role in protecting Iran's current regime.
Conclusion: Political and Economic Implications
For President Trump, signing a final agreement would be a disaster for his ideological legacy. However, with the upcoming elections, he cannot allow the conflict with Iran to escalate to a point that would damage the Republican Party's chances of re-election.
Therefore, according to sources from both Washington and Tehran, it is likely that Trump will maintain the status quo - military actions without escalating the conflict, while continuing negotiations toward a final agreement. However, after the midterm elections, all constraints will be removed, and Trump may pursue an agreement that he truly desires, including regime change.
The ongoing tensions between the US and Iran continue to create uncertainty in global energy markets, with potential impacts on both economic stability and geopolitical relationships in the Middle East. As the November deadline approaches, all eyes will be on how both nations navigate these complex challenges while balancing domestic political considerations with international obligations.