Analyst Divyang Shah stated that the Middle East conflict presents a zero-sum game on multiple issues—whether it's the Lebanon issue, control of the Strait of Hormuz, or the handling of Iran's enriched uranium and frozen assets—there are no exceptions. A victory for one side signifies a clear defeat for the other; the middle ground is nonexistent.
This week, one issue has been pushed to the forefront: the US effort to maintain freedom of passage through the Strait clashes directly with Iran's intention to maintain control.
Since the signing of the memorandum two weeks ago, the US has been attempting to allow ships to pass through the Strait via the Oman route. Iran views this as a threat to its leverage, as it wants ships to pass through via the Iranian route to the north. Attacks on ships crossing the Strait have targeted those attempting to use the Oman route, and the US government's response has remained restrained military action. In the past 24 hours, the US attempted to re-establish the Oman route's right of way, with reports indicating that it escorted a convoy of oil tankers with their Automatic Identification System (AIS) signals turned off.
For any diplomatic solution to the Middle East war to succeed, one side must be willing to accept defeat, and neither US President Trump nor Iran seems willing, meaning a diplomatic solution is unlikely. The ceasefire on April 9th and the subsequent signing of the memorandum on June 17th provided a window of opportunity for both sides: 1) Iran was able to fortify its attacked positions and deploy covert missiles; 2) the US was able to quickly move ships out of the Straits and remove urgently needed cargo, including crude oil. According to Bloomberg, of the 109 non-Iranian large oil tankers stranded in the Persian Gulf at the outbreak of the war, only one remains, with 50 having departed on or after June 18th.
The risk of escalation is rising, as Iran is likely to seek to regain control of the Straits and prevent the US from normalizing the Oman shipping route.
For Iran, this is not only about maintaining wartime leverage but also about long-term post-war competition. Implied volatility has declined across the board since its March/April peak, and given the struggle for control of the Straits, now may be the time to reassess volatility. The tit-for-tat exchanges that have been ongoing since last week are far from under control, and the risk of returning to a state of full-scale war remains high as the United States launches its fifth strike.
