Iran's six Hormuz conditions raise oil risk as US seeks exit

Vice President JD Vance called the US-Iran war "mid-game" on Saturday, even as the top US general privately pushes for an exit and Iran's security council sets six conditions for reopening the Strait of Hormuz, which carries about a fifth of global oil.

Reopening the strait "is subject to the specific mechanisms and conditions of the Islamic Republic of Iran," Foreign Minister Abbas Araghchi told state-affiliated Tasnim, adding that the waterway "is not merely an economic waterway for us; rather, it is an element of geopolitical and strategic power."

The peak supply loss from the conflict stands at more than 12 million barrels a day, or 11.5 percent of global demand, according to the International Energy Agency, which released a record 400 million barrels from strategic stockpiles in March. Brent crude peaked above $138 a barrel after the strait closed on Feb. 28, while US imports of Saudi crude fell to zero in July for the first time since 1985, preliminary Energy Department data show.

The standoff keeps roughly a fifth of global LNG production offline in Qatar and has disrupted Gulf refineries supplying jet fuel and diesel to Africa, Europe and Asia. Even a quick peace deal would leave supply disruptions in place for months and, in the case of gas, for years, pushing the cumulative impact well beyond the estimated 624 million barrels removed in the first 52 days.

The six conditions, delivered Saturday by Mohammad Zolghadr, secretary of Iran's Supreme National Security Council, demand the US never threaten Iran, end all aggression against it and its allies, lift the naval blockade and withdraw forces from around the country, pay restitution for war damages, remove all sanctions and unfreeze Iranian assets unconditionally. Zolghadr called them "the demands of the Iranian people, who have been shouting in squares and streets for 160 days."

The demands are not a formal negotiating position, according to the Wall Street Journal, which reported that Iranian diplomats in actual talks with mediators have been more pragmatic, focusing on lifting the naval blockade, restoring sanctions exemptions for oil exports and unfreezing tens of billions of dollars in Iranian funds. The hardline council reports directly to Supreme Leader Ayatollah Ali Khamenei, and its public posture suggests the Islamic Revolutionary Guard Corps is setting a high bar for any deal.

Ammunition depletion narrows US options

The military pressure behind the US position is thinning. Since the conflict began, US forces have expended nearly 80 percent of their THAAD interceptor inventory, about half of Patriot interceptors and roughly half of Tomahawk cruise missiles, according to multiple people familiar with the matter. Joint Chiefs Chairman Gen. Dan Caine has privately told Vance, Secretary of State Marco Rubio and CIA Director John Ratcliffe that air power alone is unlikely to achieve all of President Donald Trump's stated objectives, and has warned Trump that inventories have fallen to "dangerously low" levels.

Trump initially denied the shortages before acknowledging that "certain types" of ammunition were "relatively tight." Central Command has solicited "creative, unconventional" proposals from within its ranks, a sign that options to force a deal are running low. The USS Lincoln carrier has been deployed in the Middle East for more than eight months, with more than 5,000 crew facing supply shortfalls and sagging morale.

Temporary lane nears, full reopening far off

Iran and Oman are close to agreeing on a temporary shipping lane through the strait, Araghchi said Saturday, though he stressed this "does not mean the Strait of Hormuz will be reopened." The draft agreement would route inbound traffic near the Iranian coast and outbound traffic near the Omani coast, with Iran exercising regulatory authority over incoming vessels, the Wall Street Journal reported. Iran insists any deal bar US Navy warships from transiting the strait, a demand US officials have told mediators they will not accept, along with any Iranian tolls or restrictions on traffic.

The stakes for global markets remain acute. ADNOC, the UAE's state oil company, said three vessels were struck by missiles or drones in the past week, bringing the total to 15 ships hit since the war began. The UAE blamed the Revolutionary Guard for the latest attack on Saturday.

The last comparable supply shock, the 1978-79 Iranian Revolution, removed a peak of 5.6 million barrels a day but produced a larger cumulative loss of more than 4 billion barrels over three years, according to US Energy Department data. This time, the countries with spare capacity — Saudi Arabia and the UAE — cannot compensate because they are themselves cut off by the strait's closure, leaving markets to price a risk premium that has already pushed Brent above $138.

This article is for informational purposes only and does not constitute investment advice.