Iran and Oman prepare Hormuz deal as U.S. holds back on secondary sanctions

• Transit through the Strait of Hormuz fell to 5 vessels on Tuesday, down from a 10-day average of 15 and significantly below pre-conflict levels of roughly one-third current traffic
• Brent crude oil prices dropped below $90 per barrel in response to the Iran-Oman deal, extending recent declines despite reduced shipping traffic
• The U.S. Treasury targeted 60 individuals and entities but avoided sanctioning Chinese financial firms that facilitate 90% of Iran's oil trade, citing concerns about disrupting the global financial system after China's retaliation threat

Summary

Key Development: Iran and Oman are nearing an agreement to secure safe transit through the Strait of Hormuz, a critical global shipping route. The joint statement announced a "proposed framework" for a temporary navigational corridor and plans to clear the Strait of mines, with ongoing technical negotiations for permanent administration.

Market Impact: Oil prices extended losses following the announcement, with Brent crude falling below $90 per barrel. Traffic through the Strait dropped dramatically to just five commodity vessels on Tuesday, down from a 10-day average of 15 vessels—representing a two-thirds decline from normal flow levels.

U.S. Sanctions Strategy: Treasury Secretary Scott Bessent announced an "economic D-Day" targeting Iran's economy, sanctioning 60 individuals, entities, and vessels. However, the U.S. has notably held back on imposing significant secondary sanctions on nations trading with Iran, particularly Chinese financial firms suspected of facilitating Iranian oil trade. Bessent stated Washington wants to avoid "blow[ing] up the global financial system" and provide a "cure period."

China Factor: China, which purchases approximately 90% of Iran's oil exports, warned it would "take all necessary measures to firmly safeguard its rights and interests" if the U.S. expands economic pressure on Tehran's trading partners. This threat appears to have influenced U.S. restraint on broader sanctions.

Additional Signals: The U.S. has reportedly begun returning diplomats to Gulf states, suggesting reduced expectations for military escalation. Unverified reports from Russia cited a potential U.S.-Iran ceasefire agreement including freedom of shipping through Hormuz.