Failed US-Iran deal puts oil and trade routes back in focus

Why the truce fell apart

A short-lived US-Iran truce has collapsed, reigniting tensions around one of the world's most important energy shipping routes.

In a new CBA Global Economic and Markets Research note, Senior Geo-Economics Analyst Madison Cartwright said that “against our expectations, the Memorandum of Understanding between Iran and the US has collapsed.”

The dispute centres on who controls the Strait of Hormuz. Iran argues the truce gave it and Oman future governance of the waterway. 

The US encouraged ships to use a southern route through Omani waters, which Iran viewed as an attempt to weaken its control of the Strait.

Iran has declared the Strait closed and resumed attacks on commercial ships using the southern route, while the US has reimposed its blockade of Iranian ports.

Why the routes matter

The pressure is not limited to the Strait of Hormuz. 

The Iran-backed Houthi forces in Yemen have announced a maritime blockade of Saudi Arabia, which affects oil exports that had been redirected through the Red Sea.

Data from 2022 shows the risks if the blockade expands beyond Saudi Arabia, with 14 per cent of Australia’s imports passing through the Bab el-Mandeb Strait - which links the Red Sea to the Indian Ocean - along with 12 per cent of China’s imports, 10 per cent of Japan’s, 11 per cent of New Zealand’s and 19 per cent of the UK’s. 

The temporary reopening of the Strait of Hormuz produced only a modest rebuilding of US oil inventories, while tanker imports in Japan, China and Europe remain below recent years, Cartwright said.

Some prices including aluminium and urea have stabilised. Others have risen again with the renewed tension, while US retail petrol and diesel prices remain elevated.

Why a quick deal looks hard

CBA’s base case is that the war continues at its current intensity for at least the next two months, with a 55 per cent probability attached to that outcome.

“A diplomatic solution is now very difficult to achieve,” Cartwright said. “CBA puts the chance of a diplomatic breakthrough and a new ceasefire in the next two months at 15 per cent.”

The problem, Cartwright added, is that the US is unlikely to offer the concessions Iran would now seek. That leaves both sides relying on military pressure while the economic and political costs build.

The risk to watch

CBA puts the risk of escalation in the next two months at 30 per cent, higher than the probability of a quick new deal.

A return to a large-scale strategic bombing campaign by the US is possible - although not CBA’s base case - and such a move would likely trigger a disproportionate Iranian response against regional energy infrastructure and shipping routes.

Iran’s own economy is under pressure. Citing IMF forecasts, Cartwright said Iran’s economy is expected to shrink by 6 per cent in 2026, with exports falling 20 per cent and the current account moving into a deficit of 1.8 per cent of GDP.

“Economic and political pressure will eventually drive both sides back to negotiations,” Cartwright said.

For now, though, CBA expects the difficult path back to diplomacy to run through more pressure on oil, shipping and regional security before a deal becomes more likely.

This article is based on CBA Global Economic and Markets Research, Selected Issues, 20 July 2026, “Geo-economic views: After the MoU, a difficult path back to negotiations”.