Iran and US Return to Mediated Talks Amidst Ongoing War Impact

Iran and the United States have returned to mediated talks, and their military actions have been temporarily halted. However, the impact of the war continues to be felt on international waterways beyond the Strait of Hormuz and in domestic markets.

The near-complete closure of the strategic waterway, the obstruction in the Red Sea by Iran-backed Houthi rebels in Yemen, and Ukraine's attack on an Iranian ship in the Caspian Sea have heightened tensions.

The US military has imposed a naval blockade on the country's southern ports for the second time. Along with this, the Iranian government is facing more difficult options, including potential fuel price increases amidst high social and economic dissatisfaction.

The Ministry of Petroleum reported on Saturday that Iran sold $11.5 billion worth of crude oil during the war. However, the ministry has not disclosed the exact dates.

During the period of a Memorandum of Understanding (MOU) signed with the US last month and currently suspended, oil sales worth $6.5 billion were made. The ministry stated that combined, these would amount to 60 percent of the year's oil revenue target set in the budget.

Following the signing of the MOU on June 17, the Strait of Hormuz was partially opened, and the US naval blockade on Iran was lifted. This somewhat eased the pressure on the global oil market. It also facilitated Iran's export of oil stored in supertankers waiting to depart from its waters.

According to Iran's Ministry of Petroleum, increased oil prices, despite the US blockade, generated an additional value of approximately $3 billion in the first half of the year. The $11 billion received from this has already been deposited into the government treasury.

Iranian officials have confirmed that crude oil exports were almost zero during the previous blockade, which lasted for more than two months and was imposed on April 13. The prolonged second blockade risks further reducing Iran's export revenue.

This will increase pressure on Iran's Kharg Island, where 90 percent of its crude oil exports originate, as well as other storage and export terminals. This could affect the production of petrochemical plants, and restarting them later could be expensive and slow.

The US military's Central Command (CENTCOM) reported that as of Saturday, 12 commercial vessels attempting to break the blockade, which has been in effect since mid-July, have been turned back. CENTCOM stated that two vessels that did not comply were disabled and that soldiers boarded two vessels to 'ensure full compliance'.

The US military also released a video showing soldiers with heavy weapons descending from a helicopter onto the deck of the Iran-related oil tanker 'Charminar'. This tanker has been under US sanctions since last year, accused of being part of the Shamkhani network. The US claims that Iranian oil trader Mohammad Hossein Shamkhani played a key role in operating Iran and Russia's shadow fleet.

Emphasizing that its armed forces will not yield to pressure, Iran stated that it is turning away many ships daily to keep the waterway open. Iranian media reported on Sunday that a ship in the Strait of Hormuz exploded after hitting a naval mine.

Nevertheless, CENTCOM has halted widespread bombing against Iran for two consecutive nights. US Ambassador to the United Nations, Mike Waltz, stated that President Donald Trump is giving 'some space' for talks with Tehran.

Iran has also stopped its retaliatory attacks across the region. Foreign Ministry spokesman Ismail Baghaei said that discussions with Oman regarding reopening the Strait of Hormuz have been fruitful.

Internal Situation

However, the oil export ban is exacerbating Iran's existing economic crisis. This crisis is linked to internal structural problems, mismanagement, and years of stringent sanctions.

Iran's infrastructure suffered significant damage during the war initiated by the US and Israel in late February. The situation could worsen if the conflict escalates.

Before the war, Iran's natural gas production was around 650 million cubic meters per day. The government stated last month that this production has decreased by about 230 million cubic meters per day due to US and Israeli bombings, further increasing the shortage of electricity and petrochemicals.

Sakhawat Asadi, Managing Director of the Pars Special Economic Energy Zone, stated on Sunday that Iran expects to restore more than 100 million cubic meters of lost production capacity per day in the coming months.

Officials are struggling to manage the fuel imbalance, with the country facing a shortage of over 20 million liters of petrol daily. Efforts are being made to overcome this shortage through limited but expensive imports, blending fuel components, using stockpiles from before the war, and repeatedly urging citizens to consume less.

The Ministry of Petroleum stated that if this imbalance persists, stricter limits on monthly fuel consumption may be imposed.

The government is seriously considering doubling the price of the third tier of the monthly petrol quota allocated to individuals, it said this week.

Petrol prices were previously increased in December. A wave of nationwide protests followed a few weeks later. Thousands of people were killed in the government's crackdown in January. Nationwide deadly protests also occurred in November 2019 when fuel prices were raised overnight.

Cities across the country, including the capital Tehran, are facing rolling power outages. This is also disrupting water supply and communication services. President Masoud Pezeshkian stated that he has instructed industries not to cut power until the end of September to prevent further deterioration of the weak labor market.

The closure of the Strait of Hormuz has also affected trade with China, Iran's largest trading partner and oil buyer. China has significantly reduced its overall crude oil imports to adapt to the situation created by the war.

Non-oil trade with China has also declined since the war began. According to Chinese customs data, this trade decreased by 75 percent in March and June compared to a year earlier.

Officials have imposed near-complete internet bans twice. The ban imposed during the January protests and later during the war has further damaged Iran's economy this year. The country is struggling with long-term inflation and a sharp decline in citizens' purchasing power.

According to a report last year by the Saba Pension Strategies Institute, a think tank run by Iran's state pension fund, just over 30 percent of Iranians lived below the poverty line five years ago. This rate is estimated to have increased to 45 percent this year and is still rising.

Expanding to Bab el-Mandeb and the Caspian Sea

Iran had repeatedly warned that if the war escalated, the scope of maritime blockade could extend to the Red Sea. Subsequently, Houthi rebels in Yemen announced a blockade against Saudi Arabia last week. They are turning back or attacking ships transiting near the Bab el-Mandeb waterway and bombing Saudi oil facilities.

Dozens of commercial ships, including Chinese supertankers, continue to travel through this waterway. However, war-risk premiums have increased, raising import and insurance costs for everyone.

Saudi officials are leading a coalition supporting Yemen's internationally recognized government against the Houthis. They have responded with large-scale airstrikes across Yemen.

Further north, Ukraine has confirmed attacking a ship in the Caspian Sea. President Volodymyr Zelenskyy accused the ship of carrying military equipment related to Iran.

According to Iranian officials, it was a commercial vessel en route to the northern Iranian port of Anzali, importing iron from Russia's Volga River port of Astrakhan. They stated that one sailor died and three were injured in the attack.

Iran's Foreign Ministry summoned the Ukrainian acting ambassador in Tehran to lodge a strong protest and warned that 'this action will be responded to'.

This incident has raised concerns that the Caspian Sea, previously used safely for trade, could also become a scene of further military confrontation.

Iran's Caspian trade is mainly with Russia, Kazakhstan, Turkmenistan, and Azerbaijan. It imports essential goods such as wheat and other grains, corn, barley, and animal feed, as well as timber and fertilizer.

Exports from the country via the northern sea route include construction materials, steel products, agricultural goods, and some processed petrochemical products.

The increasing disruption due to the war has not only motivated hardline analysts connected to the state to advocate for a closer strategic partnership with China and Russia.

Mehdi Kharatian, a political analyst associated with Iran's Islamic Revolutionary Guard Corps, wrote on X on Sunday, 'We can now say that the two war fronts in West Asia and Ukraine are increasingly intertwined.'

Al Jazeera