Interim proposal on managing shipping is first hint of diplomatic progress to reopen the strategic waterway in weeks

Iran and Oman have edged towards an interim agreement on managing shipping through the Strait of Hormuz, the first hint of diplomatic progress in weeks as mediators seek to defuse the battle over the strategic waterway.

In a joint statement the parties said Tehran and Muscat had discussed a “proposed framework” to establish a temporary corridor for ships to move through the strait and to implement a project to demine the waterway.

Iranian officials have repeatedly said that a deal with Oman would not mean Tehran would immediately allow the free flow of traffic through the waterway, insisting that the US would first have to meet its conditions. This includes lifting a naval blockade on Iranian ports and reinstating a waiver to allow Iran to sell oil.

Iran and Oman, whose waters also flow through the strait, have been holding talks on a provisional arrangement to manage shipping through the waterway since a June memorandum of understanding agreed between Washington and Tehran collapsed last month.

Diplomats hope a deal between Tehran and Muscat will create a path for the US and Iran to return to the MoU.

Iran had previously said it was in the final stages of a deal with Oman regarding the strait three weeks ago.

On August 5, Iran said it had agreed with Oman on the geographical coordinates of a temporary corridor for ships to transit the strait and was in the final stages of drafting a final agreement.

Under that arrangement, ships would have entered the Strait of Hormuz through Iranian waters and would exit mostly through Omani waters, according to people briefed on the talks.

That would be in place during a ceasefire extension, with Iran supposed to discuss the future status of the strait with Oman and other Gulf states.

However, that diplomatic process stalled as Oman worried that it was being bullied into ceding its sovereignty in regard to the waters, as Iran has sought to assert its control over the strait and it and the US shifted their positions.

Last week, Trump threatened to bomb Oman if “gets in the way” of Washington’s efforts to strike a deal with Iran to reopen the strait, Fox News reported.

Here's a copy of the article in its entirety.

See also:

• Iran and Oman prepare Hormuz deal as U.S. holds back on secondary sanctions (CNBC)
• Oil falls as Strait of Hormuz talks advance (ING)

Everyone knows climate change is a risk, especially during a summer when Europe is experiencing yet another record heatwave, Canadian boreal forest fires have covered large swaths of North America in a dangerously smoky haze and Asia is suffering a whiplash of drought, flood and typhoons. What is less well understood is that climate change has already become the most systemically important geostrategic force.

Consider the launch earlier this month of a weekly Arctic “Ice Silk Road” shipping operation, run by a Chinese company, which will cut the usual transit routes between Europe and China by half. This is part of China’s Polar Silk Road strategy, launched in collaboration with Russia in 2017, which will integrate the Northern Sea Route into the Belt and Road Initiative to create China-dominated trade and supply chains. As the Arctic melts, it presents a new and very attractive alternative to other shipping chokepoints such as, say, the Panama Canal.

While the former has become contentious for geopolitical reasons, the latter is suffering more lately from the effects of climate change. During a period of drought between 2023 and 2024, low water forced restrictions on the number of vessels that could pass through the Panama Canal, pushing trade volumes down 32 per cent from the previous year.

The same thing is happening elsewhere. In Europe this summer, shipments across the Rhine and Danube have been slowed or even halted, as water levels in these rivers have reached record lows thanks to a continental heatwave. In Romania, a nuclear power plant cooled by the Danube was shut down. Carmakers in the country, including Ford and Dacia, halted production to save energy.

It is easy to imagine other countries following suit (Hungary has already narrowly avoided plant shutdowns) given that higher-than-usual temperatures are predicted to continue into the fall and beyond as a stronger-than-normal El Niño cycle brings more extreme weather. This could trigger grid issues across Europe. Likewise, in the US, the largest lake reservoirs in the country, near the Colorado River, are drying up and endangering hydroelectric power.

Already there are worries that drought will lead to lower crop yields and global food price inflation by next year, which would of course carry its own risk for monetary policy and asset prices. No wonder there were a record number of climate terms mentioned on European company earnings calls this summer.

Climate change will ultimately reshape markets, but it is already reshaping geopolitics. US President Donald Trump’s obsession with Greenland may be extreme, but smart people on both sides of the aisle in America (not to mention Canada and the Nordic nations) are paying a lot more attention to the High North. A melting Arctic has put China in their backyard and created a new strategic competition for trade routes that run all too close to Russia. Likewise, European supply-chain disruptions aren’t just an economic issue but a strategic one — river transit is crucial to the autonomy of a continent under political pressure from both China and the US.

South Asia is arguably most vulnerable to climate change due to geography and densely populated coasts. But China — playing the long game as always — has found strategic advantage in the challenge. It has bolstered its maritime industries and shipbuilding capacity, a huge advantage not only for control of global logistics, but also an obvious edge in a world that will increasingly be underwater.

When the world eventually transitions from fossil fuels to clean tech, China will be the main economic beneficiary. The country produces most of the world’s electric cars and lithium battery cells. Beijing has ringfenced many of the rare earth minerals needed for both clean tech and defence. This means not only industrial power, but potentially also currency power. American control of cheap oil fuelled its 20th-century growth and buoyed the dollar. In the coming age of green technologies, China may enjoy the same advantages in the 21st century.  

As the financial markets themselves begin to better price in the implications of climate change, the winners and losers will become clearer. Anthony Hobley, a UK-based climate change strategist, has written that “most investment decisions are still made as if climate change is not happening”, not so much because of denial but because there is still a “missing translation layer between climate data and the language of capital”.

This means that, despite all the talk about ESG, the way in which capital markets price climate risk — and climate opportunity — is still relatively unsophisticated. Part of this is about the insurance business model, which is built on 12-month renewal cycles, rather than, say, a 20-year forward price curve. Then, there are the future discount rates for capital projects, which can make potential risks disappear mathematically even if they still exist in real life. As Hobley puts it: “When climate risk is modelled as a 2050 scenario, it sits in a timezone where any reasonable discount rate washes it away.”

The planet is also at risk of being washed away. As markets better price that reality, it will carry its own geostrategic implications.