Iran lost militarily but won strategically

President Trump says Iran has agreed to open the strait of Hormuz during the two-week ceasefire announced yesterday. It is shaky today, but that is not uncommon on the first day of a ceasefire.

More important: details are lacking, and Trump is not a credible source on what was agreed.

Here is the Iranian Foreign Minister’s statement:

On behalf of the Islamic Republic of Iran, I express gratitude and appreciation for my dear brothers HE Prime Minister of Pakistan Sharif and HE Field Marshal Munir for their tireless efforts to end the war in the region.

In response to the brotherly request of PM Sharif in his tweet, and considering the request by the U.S. for negotiations based on its 15-point proposal as well as announcement by POTUS about acceptance of the general framework of Iran’s 10-point proposal as a basis for negotiations, I hereby declare on behalf of Iran’s Supreme National Security Council:

If attacks against Iran are halted, our Powerful Armed Forces will cease their defensive operations.

For a period of two weeks, safe passage through the Strait of Hormuz will be possible via coordination with Iran’s Armed Forces and with due consideration of technical limitations.

Hormuz is the prize

This is more interesting. We don’t have a copy of either the US or the Iranian proposal. But we know that continued control over the strait of Hormuz is part of the Iranian one. The US acceptance of it is significant. So too is US acceptance of coordination with Iran’s Armed Forces. Washington has de facto conceded the most important Iranian goal (apart from regime survival).

The Wall Street Journal has confirmed that Iran will limit the number of transiting ships and charge tolls. ABC correspondent Jonathan Karl reports on Twitter:

This morning, I asked President Trump if he’s okay with the Iranians charging a toll for all ships that go through the Strait of Hormuz, he told me there may be a Joint US-Iran venture to charge tolls: “We’re thinking of doing it as a joint venture. It’s a way of securing it — also securing it from lots of other people.” “It’s a beautiful thing”

Clearly the President is not opposing tolls, though getting a piece of the action may be a stretch. Trump has never seen any flow of money he wouldn’t imagine coming to his own pockets.

Why is control of the strait so important to Iran?

For Iran, control of the strait signifies several things. First, it means Tehran can control the flow of oil, gas, and other commodities, giving it leverage over Gulf. Second, it gives Iran influence over world prices for vital commodities, including its own oil. Third, the world economy will now depend on decisions taken in Tehran. All that gives Iran a means–closing the strait–of deterring and countering any future attacks.

The Gulf producers can of course build more pipelines that circumvent the strait, as I urged them to do years ago. But that takes time and money. In the meanwhile, they must temper their anger at Iran and mollify the Islamic Republic.

It is not yet clear whether Iran will be able to charge tolls. That is not the general practice in international straits. Iran’s “safe passage” may not be the same the same as “transit passage.” That is the term the Law of the Sea Convention uses. It permits passage without charge except for specific services rendered.

I’d bet Iran will think up some specific services rendered worth 1-2% of a vessel’s cargo value. That would provide $50-100 billion per year, a nice haul for a country whose annual budget barely exceeds $100 billion. They will give Oman a cut, thereby blocking any Gulf Cooperation Council unity against the proposition.

What did others get?

The US and the world got what President Trump needed, the drop in high oil prices he caused. But not to levels below where they were before the start of the war. That will take the better part of the remainder of this year. The Gulf producers get to restart shipping through the strait and collecting their rents. China, and the rest of East Asia, gets oil supplies and lower prices.

Russia loses the high prices for its oil Trump relieved of sanctions. It will be interesting to see if he re-imposes them or just lets Moscow off the hook.

Disappointed, Israel continued to bomb what it says are Hezbollah targets in Lebanon. The Iranians are unhappy about that. They and the Pakistani mediators say the ceasefire includes Lebanon. We’ll have to see if Trump gets the Israelis to stop.

Who won?

Despite the military damage Iran suffered, the war is ending with the strait of Hormuz in Tehran’s control. Iran lost militarily but won strategically. The US and the Gulf lost.