When Trump and Pezeshkian signed the 14-point memorandum of understanding in Geneva on June 17, oil markets responded immediately. Brent crude, which reached $140 a barrel during the war’s height and stayed above $100 for much of the conflict, dropped precipitously towards pre-war levels in the days that followed. By mid-July, prices had nearly returned to where they were before February 28. Markets were pricing in a deal. Then the strikes resumed.
Brent crude closed at $88.10 per barrel on Friday, July 17, a gain of 4.6 percent in a single session, after Kuwait announced that Iran had attacked one of its power and water desalination plants. That attack came a week after the US military struck some 140 Iranian targets over a single weekend, CENTCOM confirmed, and a week after Iran retaliated by targeting US military bases and infrastructure inside Gulf nations and intercepting two ships in the Strait of Hormuz on what Iran described as an “illegal” route. Two ADNOC supertankers were hit by projectiles while transiting the strait, killing one mariner and injuring several others. The MOU committed both sides to ending military operations permanently. On July 17, both sides were still conducting them.
The recent week’s price action reflects the dilemma of the market exactly. By late June, the ceasefire seemed to be holding, and oil had turned back to pre-war prices, dropping dramatically from its April highs. Each resumption of strikes pushes prices back up. As diplomatic contact comes and goes, they sink further. The market is pricing not a war and not a peace but a continuous oscillation between them, which is arguably the worst possible environment for long-term investment, shipping planning, and consumer price stability in the world’s energy-importing economies.
What the Numbers Mean for Ordinary Countries
The human cost of this oscillation is not abstract. Oil prices are up more than 40 percent compared with before the US and Israel launched strikes on Iran on February 28, with numerous countries implementing fuel rationing and energy conservation measures to manage the shock. Pakistan, which is 85 percent energy-import dependent, has consumed all that 40 percent increase in energy imports over five months in a disrupted supply chain. The federal budget presented on June 12 set a petroleum development levy target Rs 259 billion higher than the current year, a built-in assumption that fuel costs remain elevated. This was a correct assumption. The PDL mathematics works precisely because the consumer absorbs the difference.
After five months of fighting, inventories with both governments and private industry are much lower, so there is not as much buffer as there was in March to absorb the impact of a new price increase. When the war first began, countries could tap strategic reserves. Five months later, those reserves are reduced. A sustained return to $100-plus oil, which markets are now treating as a realistic scenario rather than a tail risk, would arrive in an environment where the cushion has already been used.
The US Treasury Department’s authorization for Iranian oil sales, issued as part of the MOU concessions, expired at 12:01 am EDT on July 17, with transactions no longer allowed after that point. That waiver expired on the day of the MOU’s planned full reopening of the waterway, removing one of the MOU’s core concessions to Iran on that day. Both deliverables failed on the same date. Markets noticed both.
The Structural Problem Behind the Price Spike
Before the war, an average of 120 vessels passed through the Strait of Hormuz each day, but by late March, only four were being monitored at the height of the closure. Even after the MOU, traffic has recovered to “steady but not increasing” levels, with a significant proportion of vessels still using the longer Omani coastal route to avoid the main channel. It is not the strait that is open if it once carried 120 transits per day and now carries only a small fraction of that. It is a contested one with intermittent access that shipping insurers, cargo owners, and oil traders are pricing accordingly.
The MOU left the Hormuz sovereignty issue for final resolution within 60 days, and that is the underlying reason for all the price surges since June 17. The strait is a risk asset and not a reliable energy corridor until a binding transit protocol is agreed and implemented by Iran and the US. The final deal deadline is August 16. Twenty-nine days remain. Each strike between now and then adds a premium to the barrel price that consumers from Karachi to Nairobi are already paying at the pump.
