Iran shifts to full offensive as 60-day Hormuz deal expires

Iran has decided to shift its policy from defensive to "full offensive," setting a multi-week deadline for the United States to fully implement the June memorandum of understanding, a senior Iranian official told Reuters, warning that all Iranian entities are prepared to escalate tensions in the Strait of Hormuz and the region if diplomatic efforts fail.

"Pressing the United States or relying on mediators to reach a lasting peace is not realistic," the official said, adding that Iran will not wait indefinitely for Washington to lift its maritime blockade. The timeline will be conveyed to the US and regional countries through intermediaries.

The warning lands as the 60-day deadline on the June accord expires Monday with the two sides further apart than when it was signed at Versailles. Brent crude futures rose 20 cents to $88.72 a barrel while West Texas Intermediate slipped 5 cents to $82.35, after both contracts climbed more than 5 percent last week on attacks targeting tankers in the strait. Traffic through the waterway, which carried a fifth of the world's traded oil and gas before the war, has fallen to a small fraction of pre-war levels.

The escalation threat raises the stakes for an oil market already pricing a sustained risk premium, with Iran demanding the lifting of the US blockade, withdrawal of American forces and war reparations in exchange for reopening the strait. If the deadline passes without a deal, renewed strikes on tankers and Gulf infrastructure could push crude sharply higher and deepen a conflict that began Feb. 28.

Iran's demands, delivered through intermediaries this month, include the lifting of the American blockade, the withdrawal of US forces from around Iran and reparations for damage inflicted in the war started by the US and Israel on Feb. 28. Even then, Tehran has said it would control the strait — and potentially charge fees — through an agreement it is negotiating with Oman, and that the waterway will not return to being an open, toll-free route as it was before the war.

President Donald Trump has rejected those terms, saying it is Tehran that should pay reparations and claiming the US controls the strait. Washington is instead banking on economic pressure to bring Iran's rulers to heel, with Treasury Secretary Scott Bessent promising new measures as soon as this week that could target Chinese "teapot" refiners buying Iranian crude and the banks that process those transactions.

The cross-asset reaction has been muted so far. Saudi Arabia's benchmark index rose 0.9 percent Sunday, helped by gains in Al Rajhi Bank and Saudi Aramco, even as Brent settled Friday at $88.52 a barrel, up 1.7 percent. But the calm masks a deeper strain: Iran's economy has been battered by the war and isolation, inflation has soared, and the crisis could stoke renewed anti-government protests like those brutally crushed in January.

The last time Tehran moved toward escalation, in the weeks after the June accord collapsed, the US responded by striking Iran, which retaliated against Arab countries hosting American forces, including Jordan, Kuwait and Bahrain. That cycle pushed both contracts up more than 5 percent in a single week and forced Washington to cancel oil-sale waivers and restore the blockade.

The Trump administration has been exploring alternatives to a formal deal, including a secret backchannel to the Islamic Revolutionary Guard Corps brokered through Iraqi Kurdish President Nechirvan Barzani, according to Axios. But with Iran's parliament also approving a bill that would criminalize interviews with US and Israeli media, and Tehran touting a $30,000 bounty for killing or capturing US troops, the window for a negotiated settlement appears to be narrowing.

If the multi-week deadline passes without progress, the risk is a return to the open conflict that closed the strait and sent oil prices surging. If Washington blinks and accepts Iran's terms, it would hand Tehran control over a waterway that moves a fifth of global oil and gas — a concession Trump has ruled out. Both sides are betting the other will break first.

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