Trump Declares the Iran Truce Over: Oil Climbs Again as Tankers Are Struck

The fragile truce in the Gulf appears to be over. Ships were attacked in the Strait of Hormuz on Monday and Tuesday, President Trump declared that he considered the ceasefire finished, and Brent crude, which had drifted down to about 72 dollars a barrel after June's reopening, is climbing once more.

Iran struck three commercial vessels that it said had bypassed its preapproved routes through the strait. The United States, which had been stepping up its own strikes against Iranian assets, responded by rescinding Iran's licence to sell oil internationally, reversing a central provision of the memorandum of understanding signed on 17 June.

On Tuesday, as American operations intensified, Mr Trump said he regarded the truce as over. The remark, and the salvoes around it, bring to an end a month in which the Gulf had begun, cautiously, to look like a waterway rather than a battlefield.

The speed of the unravelling has caught markets off guard. Only three weeks ago, the reopening of the strait under the June memorandum had pulled Brent down to about 72 dollars and drawn a line, many hoped, under the worst energy shock in years. That hope has now been shelved.

The escalation ladder

Each side has climbed a rung at a time. The April ceasefire stopped the shooting; the June memorandum reopened a measure of trade; the attacks of the past two days have put both in doubt. The pattern is familiar from every confrontation in the Gulf: each rung is easier to climb than to descend, and each party insists the other climbed first.

For shipping, the arithmetic is immediate. War risk premiums rise with every attack, some owners refuse the passage altogether, and freight rates climb to compensate those who sail. Traffic through the strait peaked at 49 ships on 7 July before slowing sharply, with just 25 vessels recorded the following Wednesday. Every delayed or diverted tanker feeds, in the end, into the price of refined fuel.

Insurers, who price the risk of every voyage through the Gulf, had only just begun to lower their war risk rates after the June reopening. Those reductions are being reversed, and some underwriters are again declining to cover the passage at any price.

What it means for Britain

British motorists will feel the turn first at the pump. The fall in crude through June had begun to show up as gentler prices on the forecourt; that improvement is now at risk. If Brent sustains its climb, the rises of the spring will begin to repeat themselves within weeks.

Energy bills are insulated for the moment by the price cap, but a sustained rise in wholesale costs feeds through to the next adjustment, and the timing could hardly be worse: the level of the winter cap will be set against wholesale prices prevailing in the coming months.

Much now depends on whether the events of the past fortnight prove to be a spasm or a resumption. A negotiated return to the June understanding would steady markets quickly; a slide back towards open conflict would put the spring's hundred-dollar oil, and everything that came with it, back on the table. The lesson of the spring was that the strait can be closed faster than it can be reopened, and that the economic damage lingers long after the headlines move on.

For the government in London, the options are limited and familiar: diplomatic support for de-escalation, close watching of fuel and freight costs, and contingency planning for a winter in which energy is once again the most volatile line in the national accounts. Ministers have been here before, in February and March, and know how quickly a dearer barrel becomes a dearer weekly shop.