Brent Crude Falls 2.9% as Iran and Oman Pursue Temporary Hormuz Shipping Deal

A 2.9% fall to $104.52 puts Thursday's close near $107.64, so about $3.12 a barrel came off Brent on Friday ^[1][1]. What the market bought for it is a meeting. Ministers from Saudi Arabia, the UAE, Qatar, Kuwait, Bahrain and Oman are due to sit down with their Iranian counterpart on Monday, sources told the Financial Times, in the first such gathering since the U.S. and Israel launched their war on Tehran ^[2][3].

The scheme they will discuss is narrower than the move in the price. Oman and Iran have been crafting a deal to manage Hormuz traffic temporarily and are trying to get the GCC behind it, and by the FT's account an agreement would not fully reopen the strait ^[4][5]. Tehran has insisted the U.S. first fulfil the terms of the ceasefire reached in June ^[6]. "For Iran and Oman it is about getting the GCC on board to try and use that to get the U.S. to lift its blockade on Iranian ports," a source told the FT ^[7]. The same source said the GCC wants to ensure that "whatever is agreed is temporary and they are able to get ships in and out" ^[8].

The volumes came from the escorts. U.S. forces helping non-Iranian oil through Hormuz have brought exports from the region to around two-thirds of prewar levels, while the blockade keeps Iran's own ports shut and Iranian drones and missiles keep other exporters below prewar rates ^[10][9]. A third of the region's prewar barrels is still not moving ^[2].

The substitute route is under attack. Iran helped the Houthis seize territory near the Bab al-Mandab Strait, the link between the Red Sea and the Arabian Sea ^[12]. Saudi Arabia had been diverting Gulf crude to the Red Sea through its East-West Pipeline, and the Houthis reportedly hit the pipeline and Saudi tankers in recent days ^[13][14]. Mohammed bin Salman called Donald Trump twice on Thursday to ask for U.S. strikes on the Houthis and was turned down, sources told Axios ^[15]. U.S. officials said the administration will provide intelligence and targeting data, and that U.S. forces will stay focused on Iran and Hormuz and off a second front ^[16].

Riyadh's other guarantee, Pakistan, is thin: it has a defence pact with the kingdom and troops near the Saudi border with Yemen, and it also depends on energy shipments crossing both Hormuz and the Red Sea ^[17][18]. Its foreign ministry has said no military response to the Houthi attacks is being discussed ^[19]. Pakistan's army chief pressed for de-escalation on all fronts in a call with Iranian foreign minister Abbas Araqchi on Thursday, Reuters reported ^[20]. "Pakistan is trying to keep a low profile in the Saudi-Houthi conflict because Pakistan's own stakes are high," a Pakistani government official told Reuters. "It does not want to spoil relations with Iran" ^[21].

Tehran has reason to take a temporary arrangement, because the blockade is crushing Iran's economy, and if flows then move past two-thirds, Friday's price was cheap ^[22]. The GCC may instead refuse anything that recognises Iranian control over the strait, and Monday ends with no communique ^[11]. A third path runs through the Red Sea, where the Houthi campaign widens and the barrels Saudi Arabia diverted there are the next ones at risk ^[14]. In my view the second is likeliest, because the escorts produced the two-thirds figure, and those escorts have already weakened Iran's ability to use the strait as political leverage ^[10][23]. Export volumes above two-thirds of prewar, or a joint GCC statement on Monday endorsing the Oman scheme, would show that judgement wrong ^[10].