By Libby Cantrill
President Donald Trump is in the French Alps this week to attend the annual G7 leaders’ summit, where one of the main focal points will be the recent memorandum of understanding (MOU) between the United States and Iran. Although the details of the agreement have not yet been made public, it reflects a fragile truce – one that is politically welcome for Trump, whose approval ratings have fallen to around 40 per cent, the lowest level of his second term, as petrol prices have risen.
The MOU reportedly includes a 60-day extension of the current ceasefire to negotiate the future of Iran’s nuclear programme, with the aim of securing a commitment from Iran to suspend nuclear enrichment for 15 or 20 years and to eliminate its uranium reserves. It would also include the immediate lifting of the naval blockade and the reopening of the Strait of Hormuz for 60 days without tolls, although the future introduction of tolls could become one of the main points of friction during the negotiations.
Some analysts have described the agreement as “the end of the beginning” rather than the definitive end of the conflict, as it postpones many of the most complex issues. Even the most optimistic observers believe that reaching a lasting agreement will take longer than 60 days.
From a practical point of view, it is expected to take some time before ships can navigate the strait safely due to the presence of mines and other hazards, which could keep a risk premium in the oil market for months, if not longer.
From a political perspective, the memorandum of understanding, provided it is signed later this week in Switzerland, will bring welcome relief, as it reduces the extreme risk of the conflict escalating in the foreseeable future and could provide some boost to Trump’s approval ratings.
However, given that Iran has transformed a theoretical source of influence — the closure of the Strait — into a real tool for exerting pressure, and considering that sanctions relief is likely to form part of any agreement, the strategic and political significance of the conflict will ultimately depend on how Iran’s nuclear programme is shaped. In any case, the risk premium in the oil market may well persist for the foreseeable future.
