Since Islamabad MoU: What’s changed for the US, Iran and the Gulf?

The collapse of a diplomatic agreement between the United States and Iran has triggered renewed military escalation and economic disruption across the Middle East. The memorandum of understanding, signed in Islamabad on June 17, aimed to establish a temporary truce between the two nations. However, both sides have now accused each other of violating the agreement, with US President Donald Trump declaring the truce over and Iran stating it no longer intends to adhere to the terms.

The breakdown has had immediate consequences for global energy markets. Iran has closed the Strait of Hormuz, a critical waterway through which approximately 20 percent of the world's oil and gas passed during peacetime. This closure has sent crude prices rising sharply. The strait's closure represents a reversal of the MoU's initial benefit, which had briefly allowed the waterway to reopen and pulled oil prices closer to pre-war levels.

The economic impact extends beyond energy prices. Gulf Cooperation Council states, which depend heavily on energy exports, face renewed threats to their economic security and diversification strategies. According to economist Mohammad Reza Farzanegan from Germany's Marburg University, the conflict threatens GCC countries' efforts to develop tourism, aviation, logistics, construction, real estate, and foreign investment sectors. Continued military operations increase insurance and transport costs while discouraging investor and tourist engagement with the region.

For Iran, the MoU had provided relief through the lifting of a naval blockade on its ports and offered oil and banking sanctions waivers. This had enabled Tehran to export tens of millions of barrels of crude oil. However, as fighting has resumed, the US has disabled vessels in the Strait of Hormuz reportedly carrying Iranian crude, while Iran has struck commercial shipping in the waterway. The US has also conducted bombing campaigns against Iran's coastal areas. Military casualties have mounted, with the US reporting 17 service member deaths, including one killed late in the previous week.