View / The US has a sanctions problem

The impending deal between Iran and Oman delineating new tanker routes through the Strait of Hormuz doesn’t mean the oil spigot will open soon, and it doesn’t fix what sanctions experts say were major flaws in the short-lived June ceasefire.

Any agreement out of Tehran and Muscat will likely revolve around a narrow plan to define the routes ships can take and the fees they should pay to do so. But for ships to actually start moving, it will require a new deal with Washington, which has insisted on a return to the prewar status quo of free navigation. And if the Trump administration wants to press for a change on that front, it will need to fix its sanctions dilemma.

The last memorandum of understanding between Tehran and Washington in June shocked many sanctions experts by how much the US gave away to Iran for very little in exchange. The deal was actually “a memorandum of confusion and misunderstanding,” Miad Maleki, a senior fellow at the hawkish DC think tank Foundation for Defense of Democracies and a former senior Treasury Department sanctions official in the Biden and Trump administrations, told me. “It was drafted for failure, not for success.”

It promised no new sanctions during the MOU period, waived sanctions on Iran’s oil exports, and assured the termination of all sanctions after the conclusion of a more comprehensive deal on Iran’s nuclear program. But completely scrapping all sanctions on Iran would require legislative changes by Congress, where very few things are getting through these days. And more urgently, the MOU let Iran ship out roughly $6 billion in oil practically overnight, much of which was essentially traded for civilian and “dual-use” hardware from China. It also allowed Iran to quickly rush oil out of floating storage ships, clearing space for production to continue once the US blockade kicked back in. Both of those effects, Maleki said, directly undermined US leverage in the more difficult nuclear talks and emboldened Iran to shrug off the ceasefire and keep attacking ships in the strait. “As soon as you tell them you’ll give them an oil waiver, they have no incentive to engage in nuclear talks,” he said.

A better model, he said, is what the US is trying with Venezuela, in which oil revenue flows into a Treasury-controlled escrow account. This is fraught, too: As my colleagues scooped this week, Congressional Democrats want to ramp up oversight investigations into where exactly all that money — $13 billion, according to Trump — has gone. That kind of deal could help Tehran at least pay for food imports and other necessities, but it’s not clear it would be enough to change its military calculus. With conflicting statements coming out of Washington and Tehran about whether direct talks are even underway, and no clarity on what the next MOU might entail, the oil price roller coaster is in for many more climbs and drops in the weeks ahead.