Memorandum of Misunderstanding: Why the US-Iran Deal Collapsed

The 17 June 2026 Islamabad Memorandum of Understanding (MOU) between the United States and Iran was designed as an interim arrangement. It was meant, in the first instance, to contain the Iran conflict’s economic fallout by enabling commercial shipping to transit the Strait of Hormuz and access Iranian ports. This, in turn, was meant to provide space for the parties to reach a more comprehensive deal on limits to the Iranian nuclear programme in exchange for relief from international sanctions. The document contained many ambiguities and potential points of failure, notably in committing a third party (Israel) to undertake actions to which it had not agreed, and in deferring more contentious issues to future negotiations. Sustaining and building upon such a fragile foundation as the basis for a longer-term peace deal would therefore require sustained diplomatic engagement on multiple fronts. That engagement never came.

The agreement’s collapse at such an early stage, before the parties even reached its more complex aspects, revealed significant gaps in the US diplomatic and public information strategy that produced the deal, leaving Washington with the same menu of unpalatable options it faced before the signature of the MOU. With midterm Congressional elections now just three months away, the Trump administration will be under severe domestic pressure to find an exit strategy that avoids major spikes in energy costs. The failure of this first serious effort at a negotiated settlement will make that task significantly more difficult.

Trying for a Do-over

It is notable that the MOU did not address any of the expansive war aims the US declared in late February. Rather, it aimed, at least initially, to restore the status quo prior to the conflict. In a best-case scenario, the damage inflicted on the Iranian military and economy would then make Tehran more amenable to concessions on nuclear issues at the negotiating table. At minimum, however, a sustainable ceasefire that restored stability to global energy markets would permit Washington a graceful exit from a conflict that was imposing ever higher costs and failing to achieve even scaled-back goals. In signing the memorandum, President Trump acknowledged he was motivated primarily by the need to avoid the economic damage that would result from a long-term disruption to the flow of energy resources through the Strait of Hormuz. On 17 June, he told reporters at the G7 Summit in Evian, France, that “we run out of [oil] reserves at about four weeks” and that he agreed to the deal “rather than possibly going into a depression, rather than having your favorite president be Herbert Hoover.”

In this context, the case for such an interim agreement seemed clear: whether or not the two sides were able to reach a long-term agreement on Iran’s nuclear programme, they both shared an interest in easing economic pressures during an open-ended negotiating process. The collapse of this particular deal was not preordained. It was the result of a failure to mobilize diplomatic resources, either in crafting the details of the text itself or in engaging with key stakeholders to ensure its implementation, and the related failure to make a compelling case for the deal to Congress or the American people.

Failure to Build Domestic Support for the Deal

Reaching even an interim deal required concessions – temporary relief from sanctions on Iranian oil, the promise of an eventual $300 billion “reconstruction fund”, and agreement that after a 60-day period of toll-free transit through the Strait of Hormuz, Iran and Oman could “define the future administration and maritime services” through the Strait – that would have been unthinkable prior to the conflict. Predictably, these concessions, along with the lack of firm commitments on Iran’s nuclear programme, drew sharp criticism in Washington, most vocally from within President Trump’s own party. Sen. Bill Cassidy (R-LA) called the deal “the worst foreign policy blunder in decades”. Sen. Ted Cruz (R-TX) mused that the President was receiving “very poor advice”, while GOP-aligned commentators outside the administration were more explicit in casting blame on Vice President JD Vance, who had led the negotiating process.

The backlash to the agreement was made worse by a flawed rollout that failed to anticipate and respond to such concerns. The White House announced on 14 June that an agreement had been reached, but did not release its text until just before its signature three days later. In the interim, the administration failed to confirm, and in some cases actively denied, details that leaked out, allowing usually friendly legislators and media outlets to dismiss what would turn out to be its key provisions as “fake news” or Iranian propaganda. On 12 June, Vice President Vance claimed “no funds are being released for simply signing a deal or attending a meeting”, dismissing media reports to the contrary as “fake information”. Trump himself denied the existence of the reconstruction fund on 15 June. Such misleading statements allowed opposition to the deal to harden before its text was even published. Even after its publication, senior administration officials continued to exaggerate or misrepresent what the MOU had achieved for the US, in order to placate its critics. Treasury Secretary Bessent downplayed the value of sanctions waivers, and Secretary of State Rubio claimed that the MOU banned Iranian financial support for regional proxies.

Irreconcilable Visions for the Strait of Hormuz

Ultimately, however, it was not the explicit financial concessions or the predictable points of failure – disagreements over nuclear enrichment or the presence of Israeli forces in Lebanon – that led to the MOU’s collapse. Rather, it was a fundamental disagreement over the very first step in its implementation – restoration of shipping through the Strait of Hormuz. Paragraph 5 of the MOU committed Iran to “make arrangements using its best efforts for the safe passage of commercial vessels with no charge, for 60 days only, from the Persian Gulf to the Sea of Oman and vice versa”, and to begin demining the Strait within 30 days. For the long term, the MOU envisioned “dialog” between Iran and Oman “to define the future administration and maritime services in the Strait of Hormuz in discussion with other Persian Gulf littoral states in line with the applicable international law and the sovereign rights of coastal states of the Strait of Hormuz.” Iran has seized on the “make arrangements” language to assert sole responsibility for managing transit through the Strait during the initial 60-day period (essentially a recognition of Iranian sovereignty over the Strait) and has obstructed and even attacked commercial vessels using transit channels not explicitly approved by Tehran. Senior Trump administration officials, meanwhile, have pointed to the reference to “applicable international law” to argue that the MOU demands restoration of respect for freedom of navigation through the Strait as an international waterway, thus barring Iran (or Oman) from collecting fees or tolls even beyond the 60 days. The fact that the MOU contains language supporting both of these mutually contradictory interpretations illustrates the agreement’s fragility as a basis for ending this high-stakes conflict.

Rapid Re-escalation

When Iran attempted to enforce its control over the Strait with strikes on commercial vessels that failed to comply with its procedures, the US response was initially restrained. Within days, however, US strikes on Iranian missile and drone infrastructure, and Iranian strikes on US military facilities throughout the region quickly escalated. On 7 July, the Treasury Department revoked the sanctions waivers called for in the MOU, undermining a key structural element of the agreement. On 10 July, Trump declared that while talks would continue, “the Cease Fire is OVER!” The US naval blockade of Iranian ports was formally reinstated on 14 July, and US and Iranian airstrikes are ongoing. The deaths of three US service members in drone attacks on US facilities in Jordan and Iraq on 17 July drew an explicit threat of retribution from President Trump, who pledged that Iran would pay for each US service member killed “many times over”. On 22 July, Trump threatened to bomb “ONE BRIDGE OR POWER PLANT” for each commercial vessel struck by Iran.

Back to Square One – but with Decreased Trust and Increased Time Pressure

The collapse of the MOU leaves the US with the same menu of bad options it had in early June. A withdrawal of US forces would leave Iran in functional control of the Strait, and thus substantial regional and global economic leverage. A return to major military operations, however, would carry unsustainable costs and risks. An intensified air campaign would further deplete stocks of critical offensive and defensive munitions; a ground operation would lack popular and Congressional support and incur significant casualties, with no guarantee of success in achieving its objectives. Either option would greatly increase the potential economic damage caused by the conflict, prompting Iran to target energy infrastructure throughout the region and Iranian-aligned Houthis in Yemen to disrupt shipping through the Red Sea by closing the Bab-el-Mandeb. Meanwhile, continuation of the status quo, through a prolonged naval blockade and low-level airstrikes, would slowly drain US fiscal and military resources without restoring stability to global energy markets.

All of this suggests that Washington will eventually seek to reinstate an interim deal generally in line with the terms of the MOU, but this too will prove more difficult to achieve than it was a month ago. On 22 July, Iraqi Prime Minister Ali Al-Zaidi reportedly delivered a new ceasefire proposal from President Trump, which was rejected by Tehran. Iran can be expected to demand more significant and more explicit concessions, and the US administration, having faced domestic political backlash for the original deal and blamed Iran for its failure, will be more hesitant to grant them.

As the Iranian leadership is well aware, the Trump administration is also under significant time pressure. With midterm elections fast approaching, Congressional Republicans are growing increasingly vocal in questioning war-related expenditures and channeling their constituents’ concerns over increasing energy costs. A spike in gasoline prices linked to the conflict would be much more politically impactful in August or September than it was in May or June. On 21 July, House Speaker Mike Johnson (R-LA), in a rare break from the administration, told reporters the US would need to “wrap up” the conflict prior to the November midterms.

Time for Diplomacy (and for Diplomats)

The US response to date has been impulsive, unilateral and heavily militarized. Trump himself complicated matters on 13 July, when he briefly announced that the US itself would charge commercial vessels a fee of “20% on all cargo shipped” (although he quickly backed away from this idea in the face of backlash from regional allies). This incident muddled what had been a clear message of support for widely accepted international principles.

Avoiding both a risky military escalation and a second high-profile diplomatic failure will require a new approach, moving beyond the ad hoc Witkoff-Kushner negotiating model, mobilizing a wider community of US experts, and launching a sustained campaign to rally the international community behind the US interpretation of “the safe passage of commercial shipping with no charge”. The US has significant political influence over Oman, which must agree to any modalities proposed by Iran for passage through the Strait. Regional, European and Asian allies share the US interest in preventing a precedent that would allow littoral states to declare sovereignty over international waterways. So do Pakistan, which served as mediator for the MOU, and China, which provides a vital economic lifeline to Iran. A serious diplomatic campaign to encourage these stakeholders to pressure Tehran to change course is less risky and more likely to succeed than the limited military escalation Washington has relied upon to date.