Why It Matters

A recent Congressional Research Service report examines the escalating crisis over control of the Strait of Hormuz following U.S. and Israeli military operations against Iran that began in late February, revealing a region where energy supplies remain vulnerable and diplomatic arrangements have already fractured.

The stakes are significant for global energy markets. The region accounts for more than 30% of global crude oil production and more than 75% of global spare crude oil production capacity. Iran's assertion of administrative control over the Strait, backed by demonstrated military capability, threatens a chokepoint through which roughly a quarter of global seaborne oil trade flows.

The June memorandum of understanding between President Donald Trump and Iranian President Masoud Pezeshkian, which called for 60 days of safe passage at no charge, collapsed within weeks. By early August, the United States had reimposed a naval blockade after renewed Iranian attacks on commercial vessels. The 60-day provision is independently supported by reporting on the text of the memorandum.

The Big Picture

The conflict began when U.S. and Israeli military operations targeted Iran's ballistic missile infrastructure, naval capabilities, and nuclear program. Iran responded by threatening to close the Strait and carrying out attacks on commercial shipping. The United Kingdom Maritime Trade Operations Centre reported more than a dozen attacks against vessels following Iran's closure declaration on March 4.

An April ceasefire halted major combat operations, but Iran continued attempting to route ships through its territorial waters and attacking noncompliant vessels. The Trump administration imposed a blockade on shipping to or from Iranian ports, with U.S. Central Command reporting the redirection of more than 140 ships and the disabling of nine noncompliant vessels.

The agreement also stated that future administration of the Strait would be determined by Iran in consultation with Oman and other Persian Gulf states. Iran has since leveraged this language as a claim of administrative authority, arguing that it was granted the right to control access. The United States contests that interpretation.

Iran established a Persian Gulf Strait Authority and claims that no vessel may pass without a valid passage permit. Iranian Parliament Speaker Mohammad Baqer Qalibaf stated on June 23 that management of the Strait would never return to the way it was before the war. Iran is reportedly seeking an estimated $40 billion windfall from formalizing control over Strait administration. Oman, however, has not aligned with Iran's position on Strait control.

The disruption to traffic through the Strait has affected global energy markets, including oil, petroleum products, and natural gas. The International Energy Agency (IEA) initiated a coordinated release of 400 million barrels from member countries' emergency reserves, the largest collective stock release in the agency's history. The region's spare production capacity is approximately 4.4 million barrels per day, with more than 75% located in Middle Eastern countries that export through the Strait.

The administration's response included a $20 billion political risk insurance facility announced on March 3, later expanded to $40 billion with private partners and Chubb as lead underwriter. The U.S. International Development Finance Corporation confirmed in April that its $20 billion in coverage, combined with another $20 billion from Chubb and six other insurers, brought the maritime reinsurance facility to $40 billion. By the time the CRS report was published, the facility had not provided any coverage. Chubb noted in April that naval escorts expected to complement the facility had not materialized.

In May, the United States launched Project Freedom to help commercial vessels navigate the Strait, though the initiative was paused days after its announcement. U.S. Central Command announced May 3 that it would support the mission with guided-missile destroyers, more than 100 land- and sea-based aircraft, unmanned platforms, and 15,000 service members.

The administration also issued General License X on June 21, described as the most expansive energy-sector license issued since oil sanctions were first imposed on Iran. The license was revoked on July 7 and replaced with General License X1, which authorized only transactions necessary to wind down activity previously permitted under General License X.

The Treasury Department's Office of Foreign Assets Control (OFAC) took sanctions actions in July as part of efforts to increase economic pressure on the Iranian government after it resumed destabilizing attacks. Treasury records confirm that General License X1 superseded General License X on July 7 and permitted wind-down transactions through July 17.

The Bottom Line

Iran maintains enough military capability to continue conducting attacks on commercial shipping and has compelled most vessels to either accede to Iranian demands or avoid transiting the Strait. The breakdown of the June agreement has left the Strait at the center of an unresolved dispute over freedom of navigation, Iranian authority, and access to one of the world's most important energy corridors.

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