Draft Hormuz Strait Deal Reached, Fed Rate Hike Expectations Rise Again

Daily News

Summary:

Iran and Oman finalize a draft agreement on the Strait of Hormuz; Cook: If inflation does not ease, I will be prepared to support a rate hike......

【Highlights】

1. Iran and Oman finalize a draft agreement on the Strait of Hormuz, pending approval by Iran’s supreme leader

2. Gulf official puts odds of a US-Iran deal on Friday at 50-50

3. Iran says it is close to reaching an agreement with Oman, with the Strait’s two existing shipping lanes to be closed

4. Iran threatens to strike Gulf states if it comes under another US attack

5. Cook: If inflation does not ease, I will be prepared to support a rate hike

6. US services activity maintains steady expansion, with resilient demand supporting growth

7. US diesel exports hit a record high last week, while domestic inventories fell to their lowest seasonal level since 1996

【Details】

Iran and Oman finalize a draft agreement on the Strait of Hormuz, pending approval by Iran’s supreme leader

Two Middle Eastern officials said negotiators from Iran and Oman have finalized a draft agreement to reopen the Strait of Hormuz and are awaiting final approval from Iran’s Supreme Leader, Mojtaba. Under the proposed interim arrangement, vessels entering the Persian Gulf would use a shipping lane controlled by Iran, while vessels leaving the Persian Gulf would use a lane controlled by Oman. Service fees would also be charged to cover security and environmental protection costs. Officials said the agreement could pave the way for the resumption of US-Iran talks on Iran’s nuclear program.

Gulf official puts odds of a US-Iran deal on Friday at 50-50

A senior Gulf official told the media that the probability of the United States and Iran reaching an interim agreement this Friday is roughly 50-50, a more cautious assessment than the optimistic signals previously sent by Washington. The source noted that Iran’s delegation does not include representatives from the hardline Islamic Revolutionary Guard Corps (IRGC), which must approve the details of any interim agreement. Internal political maneuvering therefore adds uncertainty to the final outcome. While the US has said it is engaged in very good discussions with Iran, it has simultaneously issued strong warnings that Iran would face a severe military response if it withdraws from an agreement again. The combination of incentives and threats highlights the fragility of the negotiations.

Iranian officials, meanwhile, continue to deny that there is direct communication with Washington, emphasizing that their discussions are limited to Oman and focus on technical solutions to the shipping issue in the Strait of Hormuz. Some diplomats believe that lifting the blockade of the strait, as a key bargaining chip, could open the door to broader US-Iran dialogue if a breakthrough is achieved. However, the two sides’ public disagreement over the communication channel continues to cast significant uncertainty over the outlook.

Iran says it is close to reaching an agreement with Oman, with the Strait’s two existing shipping lanes to be closed

Iranian Deputy Foreign Minister Majid Takht-Ravanchi said on August 5 that Iran and Oman are close to finalizing an agreement on the passage of commercial vessels through the Strait of Hormuz. Under the arrangement, both the northern lane controlled by Iran and the southern lane near Oman would be closed.

According to the Islamic Republic News Agency (IRNA), Takht-Ravanchi said in an interview that a new system for passage through the Strait of Hormuz would be established, replacing the system that has been in place for the past 60 years. Under the current system, both the southern lane in Omani territorial waters and the northern lane in Iranian territorial waters would be closed.

Under the proposed new route, commercial vessels would travel through Iranian territorial waters for part of their journey into and out of the Strait of Hormuz. The new route would also be temporary and is expected to remain in use for two to four months. Takht-Ravanchi denied reports that Iran and the United States were engaged in direct negotiations, but said Iran had received messages from Washington indicating that the US was prepared to resume fulfilling its commitments under a previously signed memorandum of understanding.

Iran threatens to strike Gulf states if it comes under another US attack

According to five sources, Iran has warned Gulf states that another US attack on Iranian territory would trigger retaliation against key energy infrastructure in the region. The sources said Iran conveyed the warning through a series of intensive high-level diplomatic contacts after President Trump threatened on July 28 to strike Iran’s energy networks and infrastructure.

Iranian Foreign Minister Abbas Araghchi spoke separately with the foreign ministers of Saudi Arabia, Turkey and Qatar, as well as Pakistan’s army chief, urging US allies in the Gulf to use their influence with Trump to dissuade him from launching another attack.

Cook: If inflation does not ease, I will be prepared to support a rate hike

Federal Reserve Governor Lisa Cook said on Wednesday that the longer inflation remains above the Fed’s target, the more difficult it will be to bring it under control. “If I do not see signs that inflation is continuing to move down, I will be prepared to raise interest rates.”

With inflation having remained above target for five consecutive years, Cook said the risk of inflation becoming entrenched in price- and wage-setting behavior is increasing, potentially leading to persistent inflation that would be more difficult for policymakers to address.

However, easing tariff-related effects, the possibility of lower oil prices, and a reduction in inflationary pressures associated with the artificial intelligence boom could provide some relief, potentially eliminating the need for tighter monetary policy. The primary objective remains returning inflation to the Federal Reserve’s target.

US services activity maintains steady expansion, with resilient demand supporting growth

US services activity continued to expand steadily in July as new orders and business activity rebounded. Data released Wednesday showed that the ISM Services PMI rose 0.1 point to 54.1 in July. A reading above 50 indicates expansion in the sector.

Growth in new orders accelerated, while the business activity index rose to a five-month high, indicating that consumer demand remains resilient. However, continued increases in the cost of services and materials continued to put pressure on businesses.

The ISM prices paid index jumped to 70.3 in July as the breakdown of the interim US-Iran agreement pushed up crude oil and gasoline prices. With persistently high costs squeezing corporate profit margins and affecting consumer spending, some businesses may choose to delay hiring. The employment index showed the sharpest contraction in employment since March.

US diesel exports hit a record high last week, while domestic inventories fell to their lowest seasonal level since 1996

The United States exported a record volume of distillate fuels overseas last week, while domestic inventories fell again, as strong global demand for diesel increasingly draws down US supplies.

According to data released by the US Energy Information Administration (EIA) on Wednesday, distillate fuel exports rose to 1.9 million barrels per day last week, the highest level on record and above the previous peak reached in May. Distillate fuels primarily include diesel, heating oil and other refined products.

The global diesel market was thrown into turmoil during the early stages of the US-Iran conflict. The inability of crude oil and refined-product tankers to pass through the Strait of Hormuz disrupted global fuel supplies. Ukraine’s months-long attacks on Russian refining facilities subsequently added to supply pressures.

As a result, the United States has become one of the few countries with sufficient diesel production capacity to produce large volumes of fuel for export. US diesel exports have exceeded 1.5 million barrels per day for five consecutive weeks. Even with refiners operating at full capacity to produce diesel, US fuel inventories have continued to decline. As of last week, seasonally adjusted distillate fuel inventories had fallen to their lowest level for this time of year since 1996.

【Today’s Focus】

13:30 (UTC+8) France Q2 GDP YoY, preliminary

15:00 (UTC+8) Switzerland July KOF Economic Barometer

16:00 (UTC+8) Germany Q2 GDP YoY, unadjusted, preliminary

17:00 (UTC+8) Eurozone Q2 GDP YoY, preliminary

19:00 (UTC+8) Bank of England July Interest Rate Decision

19:30 (UTC+8) Bank of England Governor Bailey Holds Monetary Policy Press Conference

20:00 (UTC+8) Germany July CPI MoM, preliminary

20:30 (UTC+8) US June PCE Price Index

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