The US and Iran Can Stop the Shooting. They Can't Reopen Hormuz.

Consider what happened in roughly a day and a half this week. Iran struck three commercial vessels in the Strait of Hormuz, including the Qatari liquefied natural gas carrier Al Rekayyat, whose engine room caught fire and which was, for a time, at risk of exploding⁵, along with a Saudi-flagged supertanker. The US Treasury revoked the waiver¹ that had let Iran legally sell its oil since June 21, calling Tehran's actions "wholly unacceptable" and giving buyers until July 17 to wind down. US Central Command hit more than 80 targets³, including coastal radar, anti-ship missile sites and over 60 Revolutionary Guard small boats. Iran answered with drones and missiles aimed at US bases in Bahrain and Kuwait⁴. Brent crude jumped more than 5 percent². And all of it unfolded during the funeral processions for Ayatollah Ali Khamenei, a window both governments had reportedly agreed to treat as a quiet period while their negotiators paused in Doha.

So the question people keep asking is whether the crisis-management machinery, the back channels, the ceasefire framework, the sanctions leverage, still works. I think that framing hides the real answer, because the machinery is being asked to do two different jobs, and it is passing one test while failing the other. As an escalation regulator, the system still functions: every flare-up since April has terminated short of full war, and this one probably will too. As an economic containment device, the thing that actually matters to a world that ran a fifth of its traded oil and gas through this waterway, it has already failed, and each new cycle makes the failure harder to reverse.

Start with what still works, because the evidence is real and it deserves a fair hearing. The Islamabad Memorandum, the framework agreement Pakistan and Qatar brokered to end the war, was signed on June 17⁶ and set a 60-day clock to negotiate a final deal covering Iran's nuclear program, frozen assets and the strait itself. The scaffolding around it keeps getting used. On July 1, indirect technical talks in Doha produced what Qatar called "positive progress," an agreed communication channel to log violations⁷, and discussion of releasing part of $6 billion in frozen Iranian funds held in Qatar, with the next meeting scheduled for after the funeral. Even as it revoked the oil waiver this week, the administration insisted the memorandum is "performance-based"¹ and that negotiators keep working toward a final agreement. That is the deterrence-and-bargaining model operating as designed: punish the violation, keep the table set. On this reading, the funeral-week exchange is noise inside a functioning system, the same strike-retaliate-reconvene rhythm that played out in late June, when Iranian attacks on Bahrain and Kuwait were followed within days by resumed talks⁸.

Here is why I don't buy that reading as the whole story. The old containment model, the one that worked in the 1980s Tanker War and every Gulf scare since, rested on a specific economic assumption: crises spike costs temporarily, and commerce snaps back once the shooting pauses. The historical record¹⁰ supported it; even at the peak of the Iran-Iraq war, with over 400 ships attacked, Gulf traffic never stopped for long. That assumption is now dead, for a structural reason. Within 48 hours of the war's opening strikes in February, before Iran laid a single mine, war-risk premiums (the separate insurance shipowners must buy to enter conflict zones, since standard policies exclude war) surged fivefold, insurers cancelled existing coverage, and Lloyd's Joint War Committee designated the whole Gulf a conflict zone. As an Irregular Warfare Initiative analysis⁹ put it, "Insurance closed the strait before Iran's Islamic Revolutionary Guard Corps (IRGC) navy did." The same analysis found premiums decline slowly or not at all even during incident-free weeks. Today's insurance architecture is tightly coupled in a way the 1980s market was not, which means every fresh tanker strike converts temporary fear into semi-permanent repricing.

The traffic data shows exactly this. Since the June ceasefire, IMF PortWatch has recorded roughly 27 commercial transits a day¹¹ through Hormuz, about a third of the pre-war average of 84, with war-risk premiums still around eight times pre-crisis levels. Saudi Arabia has moved an impressive 34 million barrels through the strait since June 17, but look at who is carrying it: largely state-backed fleets under sovereign insurance arrangements¹², or ships running with transponders dark, while independent commercial operators stay away. On July 4, outbound tankers reversed course after IRGC radio warnings. Governments are muscling oil through a channel that private commerce has abandoned. That is not containment; it is nationalized risk substituting for a functioning market.

Which brings us to the deeper problem: Iran's incentives. The three ships hit this week were all using the route near Oman's shore⁴ rather than the corridor Tehran has designated, and Iran insists that navigation management in the strait belongs to it alone under the memorandum, complete with plans to charge "service fees" for passage. When France and Britain proposed a multinational mission to clear the estimated 80 mines still in the water, Iran's deputy foreign minister rejected it outright, writing that "We strongly advise France not to complicate it further with its provocations"¹³ and claiming demining as Iran's exclusive prerogative. Read those facts together and the pattern is unmistakable. A half-closed Hormuz is not a failure of Iran's strategy; it is the strategy. Tehran's entire remaining leverage, against sanctions, against demands on its nuclear program, in the fight over frozen assets, consists of its demonstrated ability to decide which ships pass and at what price. The old containment tools assumed both sides wanted the strait open and merely disagreed about terms. One side now profits from the strait staying partly shut.

The escalation dynamics reflect that asymmetry. Each cycle since April has ended, yes, but each has ended wider than the last: strikes now reach the Fifth Fleet's home in Bahrain and bases in Kuwait, the Revolutionary Guard promises harsher responses each round, and the scholar Fawaz Gerges is right that what exists is "a lesser ceasefire"¹⁴, a limbo of no war and no peace. The circuit breaker keeps tripping before catastrophe, and that genuinely matters. But a circuit breaker that trips weekly is telling you something about the wiring.

To believe the old playbook is holding, you would have to believe that de-escalation will eventually restore what existed before February, and nothing in the data supports that. The honest verdict is narrower and stranger: the diplomats can probably keep preventing the war, and they almost certainly cannot restore the strait, because the thing blocking it is no longer primarily military. It is an insurance market that requires months of boring, incident-free transits to rebuild confidence, and an Iranian state that gets paid, in leverage, every time those months get interrupted. The 60-day clock on the Islamabad Memorandum runs out in mid-August. If a final deal by then does not settle who governs passage through Hormuz, and strip Tehran of the incentive to keep the waterway as its collateral, expect the current pattern to continue indefinitely: talks that make progress, strikes that make headlines, and a chokepoint that stays one-third open while everyone insists the crisis is under control.