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Iran War: US Doubles Down on Claim Iran Agreed to IAEA Inspections, Ballistic Missile Limits After Iran Denial; Dispute Over Food for Frozen Assets; Lebanon Ceasefire Holds as US Presents Withdrawal Plan; More on Looming Oil Cliff, Diesel and Lubricants Shortages

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[Today’s Iran war post launched before complete. Please return at 8:00 AM EDT for the final version]

The “deal” talks are already coming apart if the public disputes between the US and Iran are more than posturing. Iran and the US are already having dustups over what was allegedly agreed in Switzerland. With negotiators from two countries present, there are witnesses to what was actually said. On the issue about which the US has made the boldest claim, that Iran agreed to allow IAEA inspectors to return immediately, that is at odds with Iran’s long standing position, that no nuclear-related issues would be settled in the first phase, and that phasing is reflected in the MOU. Right after the meetings, Foreign Ministry spokesman Baghaei mentioned in a clip that I cannot locate again that the only discussion of the nuclear issue was both sides briefly stating their positions.

Baghaei below explains that Iran does allow the IAEA to inspect its Bushear site:

After JD Vance maintained that the Iran had agreed to let the IAEA inspectors return, Iran’s Foreign Ministry spokesman quickly corrected him:

Vance also loudly and repeatedly claimed that Iran’s frozen funds would be used to buy American soyabeans and other food products so as to help farmers and keep those evil Iranians from making more weapons. Again, Iran quickly weighted in:

Iran denied yet another US claim, that it could receive oil in any currency it elected. From Aljzaeera’s live feed:

Iran’s central bank governor says Iran can receive payment for oil exports in any currency it chooses

Iran’s central bank Governor Abdolnaser Hemmati has highlighted new details emerging from recent negotiations with the US, including on the reported release of $12bn in Iranian assets and the waiving of sanctions on Iranian oil.

In a video message shared by Ali Ahmadnia, head of the Iranian government’s information office, Hemmati said that Iran has no obligation to use the funds to buy US agricultural products, as claimed by US officials, but that it is not opposed to doing so if the US products are competitive.

Regarding Iranian oil exports, Hemmati emphasised flexibility in how Iran can transport the oil and receive payments, saying funds can be accepted in any currency Iran chooses, not only dollars.

On the agricultural products front, there may be more here than meets the eye. Professor Marandi said that Iran had authorized Qatar to buy US foods apparently out of sensitivity to US pressure on Qatar. However, he said Qatar had a shopping list with prices, so the buys may fall short of Team Trump hopes due to the prices being deemed to be uncompetitive (very possible with the dollar so high now). Marandi pointed out, as did others on Twitter and YouTube, that Iran intelligence assessed the massive LNG explosion in Qatar (which Qatar depicted as an accident) as the work of Israel to punish Qatar. That would account for particular Iran concern about not putting Qatar in the position of pissing off important parties any more than necessary.

If Iran buys any US farm products, you can be sure Team Trump will bray that from the rooftops, no matter how small the actual amount.

More on the narrative struggle:1

And Iran keeps rubbing it in, as shown on the Aljazeera landing page:

We now have a third example of senior officials in Pakistan Making Shit Up to support Trump claims.2 So anything coming from Pakistan has to be taken with a fistful of salt:

Iran and Oman are moving forward on formalizing management of the Strait of Hormuz:

The Oman Maritime Security Center also announced on Twitter that it is providing a shipping transit corridor through the Strait of Hormuz.

However, shippers are mighty unhappy about the incoming regime. Douglas Macgregor reported on Daniel Davis that Turkiye is increasing its Dardanelles fees by 15%. There is noise about finding ways around transit chokepoints. But a scheme proposed multiple times in Thailand, for a canal or a train route to cut from the Gulf of Thailand to the Indian Ocean to bypass the Strait of Malacca was again nixed due to local opposition. Sea transit is the most cost-efficient method of long-distance transport. And the pipeline that can be built fastest and most readily maintained, the above-ground sort, are vulnerable to attack. Nevertheless, some key points from Hormuz closure strands almost 1,200 cargo ships with $125bn worth of goods in the Financial Times:

The closure of the Strait of Hormuz has stranded more than 1,200 cargo ships carrying goods worth an estimated $125bn, according to new data, demonstrating the vulnerability of global commerce to a handful of strategic maritime chokepoints…

Allianz said the “unprecedented” closure of the strait raised “concerns about the future of global maritime trade”.

Justus Heinrich, head of marine underwriting at Allianz, told the FT the closure of the strait had changed the perception of risk in chokepoints for insurers…

But despite the slow return of more ships to the waterway, shipping and logistics companies have said that they expect alternative routes into the Gulf, either via ports facing into the Gulf of Oman or Red Sea, or via land to become a more permanent fixture.

Several shipping executives have said they were likely to invest more in alternative routes into the Gulf now that Iran has demonstrated its ability to exert control over Hormuz.

Michael Aldwell, executive vice-president for sea logistics at Kuehne+Nagel, the world’s largest freight forwarder by volume, said that K+N estimated that around 300,000 twenty-foot equivalent containers, the standard measure of container freight, were still stuck in the Gulf and that land routes in and out of the region were “under a lot of strain”….

Rahul Khanna, head of marine risk consulting at Allianz, said the insurer had already seen claims related to loss and damage to ships that had been hit by drones or missiles during the conflict and there could also be claims coming from cargoes of pharmaceuticals or frozen food that had perished…

“The shipping industry will struggle to retain and recruit seafarers at a time of growing demand for skilled workers, driven by automation and green transitions, ultimately threatening the sector’s resilience and global supply chain stability,” the [Allianz] report said.

On the kinetic war front, Lebanon continues to be quiet. Again from the Aljazeera live feed:

Ceasefire in Lebanon continues to hold

For another night here in Lebanon, there has been very little to report in the way of military exchanges.

There have been reports during nighttime hours here of military activity, down towards the city of Tyre, of Israeli vehicles on the move, and also reports of gunfire, but we are waiting to see more details of that.

That seems to be one of the very few incidents overnight.

However, Israeli devastation has been considerable:

Keep in mind that the now-largely-pointless negotiations between the sellout Lebanese government and Israel as still underway. And Israel doubles down on its fabrications:

From the body of the tweet:

We hope the MOU will succeed, and we support President Trump’s vision to ensure that Iran will not have nuclear abilities, ballistic missiles, or the ability to direct funds to its proxies, to intimidate its neighbours and to establish regional hegemony.

But I am concerned that the concept of deconfliction is misplaced.

Israel is not in conflict with Lebanon, therefore deconfliction is not the issue. All that’s required is coordination with Lebanon.

On can argue that Israel is technically correct since the official government is standing aside as Israel invades, occupies, and slaughters.

An important tidbit on the kinetic war front:

Forgive me for largely skipping over the Senate vote on a resolution calling on the Administration to bring troops in the Iran theater home, following a similar measure passed in the House. This is merely a rebuke since resolutions do not have the force of law. But it does show how US opinion against the war is hardening:

On the energy front, more and more experts are warning that the energy cliff is approaching, with any “opening” of the Strait of Hormuz likely to be too little, too late to do more than blunt the impact. It certainly is not high enough to make a dent, despite Trump hyperventilation about oil gushers:

One of the key issues driving arguments at the margin among experts is the question of how much more can come from the US Strategic Petroleum Reserve. It is unquestionably less than one would believe if you relied on official blather, that the SPR’s operating minimum is 20% of its official level.4 It’s clearly higher, which translates into lower amounts available to keep users supplied. Brandon Weichert, in a new talk with Mario Nawfal, explained more about uncertainty about how much more could be removed from the SPR:

Another issue to watch is how long it takes to empty the filled storage tanks across the Middle East; that will play into how quickly (or not) major players restart output:

From a lightly-edited machine transcript:

In the report that I wrote [for the National Security Journal], the people that I spoke to said it will be quote weeks, probably closer to months before any of those oil production and natural gas production facilities in the Gulf Arab states are fully restored to what they were before the war. and they can’t get fully restored unless they can move the oil and natural gas out of the region the way they were before February 28th…

At my website at at wikert.substack.com, substack.com I have right now, it’s gone viral, an essay I did a breakdown…Basically it’s not 340 million barrels left in the Strategic Petroleum Reserve it’s actually, the usable sources of oil are closer to a 100 million. I talked to Gary Voggler briefly about this. He’s a oil expert and he mentioned that, you know, he dealt a lot with salt caverns being used as storage for the petroleum reserve.

And as he put it, the best engineers in the world cannot calculate accurately um how much oil is stored in those salt caverns because of the volume and because of the viscosity. And he went into the whole thing. He told me over Twitter, he said that in fact one of the salt caverns he dealt with for years when they drained it, they ended up being wildly off with their calculation. They they said there was more than there really was in that in that cavern. And he suspected that that is what’s replicating throughout the entire US SPR.

Dan Dicker explained long form on Bloomberg why Trump’s successful oil market manipulation has resulted in traders who would otherwise go long sitting on the sidelines:

The talk below takes some patience because the speaker are low bit-rate transmitters and also devote too much time to stock-touting. Nevertheless, it not only describes how US diesel inventories are critically low (only 20 days!) but even more worrisome, how AI datacenter demand for diesel for generator backups will wind up taking priority over other uses due to the way datacenter power agreements are constructed. It also contained factoids new to me, such as that diesel goes bad:

John Dizard, one of our favorite commentators in the runup to the crisis (his Financial Times column then regularly provided early, in-depth, and accurate warnings on critical topics oddly missed by the mainstream press) has weighed in with an eye-popping interview with Chris Whalen of Institutional Risk Analyst. Dizard focuses on soon-to-manifest diesel and lubricant shortages. Do read John Dizard: Energy Shortages Loom Despite Peace Deal in full. Key snippets:

The IRA: How do you assess things, you know, almost two months since we did our last interview?

Dizard: A complete lack of preparation by the government as a whole for what we’re going to face. Cluelessness. I think that the Trump Administration and the rest of society are living on hope. Commercial people and corporations, even energy companies, have just accepted the government’s guidance that this will be settled soon. What else can they say? So as a consequence, unlike, say, in Japan or Korea, certainly in China or even India, there just haven’t been any preparations for actual supply shortages. We already have diesel prices that are going to be going up. If not hyperbolically, you know, very, very aggressively. And in the case of the Group III lubricants and even Group II lubricants that I’ve been obsessing about, we have an availability problem starting now…

Consider high-end lubricating oil. You take what’s called a base oil, which comes from a refinery, and then you put in additives for, say, winter or to avoid corrosion and oxidation. But they’re simply not there. The shortages are hitting the formulators, the blenders right now. They just simply can’t get supplies of high-end lubricating oil. It’ll hit consumers over a lack of availability by the end of this month or beginning of next month. Group III base oil is already, when you can get it, it’s at least $10 a gallon, but really, it’s on allocation. In other words, if you have a special arrangement with refiners, for example if you’re an auto OEM— original equipment manufacturer of autos or trucks— you’ll get some factory fill supply. But retail gasoline or retail diesel distributors just won’t have what they need. Now, this means that the auto and truck manufacturers are already saying to customers, “Well, you can stretch out your oil changes.”…

The IRA: So my idiot light goes on and I go to my auto parts store or dealer for five quarts of synthetic. What happens?

Dizard: They’re not going to be able to get it. If you run synthetic in a truck or a car, you’re basically SOL. That’s a problem. The U. S. has become highly dependent on imported lubricants. For the higher end lubricants, Group III. as they’re called, or Group IV, the U. S. imports about 70% of its requirements. Of that. 40%, between 40 and 50% has come—- until March—- from the Gulf, from refiners in the Gulf, and about 30% has come from South Korea. Neither of them are shipping product to the United States now. The Koreans have redirected their production to either domestic use and domestic OEMs, or maybe to some Korean OEM assemblers in the States….

You’d feel the shortage of diesel or gasoline, petrol immediately, whereas you might be able to postpone the lubricant use, but not forever. The immediate headline issue was a shortage of diesel. It’s life-threatening in Africa, of course, and in Asia, too. But the lubricant shortage now compounds that because you you’re going to see a tradeoff between diesel supply and the slightly heavier lubricant supply required for most trucks.

Trust me, there is a great deal more detail in this important piece, so either take a detour now or be sure to return to read it in full

One bit of good news is sadly not as good as it appears. Nikkei reports that fertilizer prices have fallen, which would seem to give farmer more ability to make sufficient purchase to treat their fields. But that decline is in large measure due to demand destruction. For instance, we cited a Washington Post article that did extensive on-the-ground fact-finding in Thailand, where fertilizer use is high due to policy decisions to promote the production of rice strains that need heavy dose. They found most farmers were leaving their fields fallow. A local contact said some were flooding rice fields to farm fish.

Note that a price fall may not result in all that many farmers returning to their old level of production. First, high diesel prices have also made growing crops untenable for many. Second, the coming Super El Nino is likely to require super-normal fertilizer applications to produce normal yields, since both high heat and heavy rains reduce output.

And let us not forget that we are past the spring planting season, so lower harvests are baked in.

From Nikkei in Fertilizer prices fall on slow demand, Chinese exports and Iran:

Fertilizer prices have fallen sharply since the end of April, providing relief for farmers battered by spikes following the outbreak of the Iran War. However, some industry insiders have warned that the market could remain turbulent for months…

Farmers, particularly in many Asian countries, scaled back their use of fertilizer or held off planting out of fear they would only harvest financial losses due to increased prices for fertilizer, fuel and other inputs and warnings about the looming El Nino weather phenomenon.

But prices then started dropping, reaching prewar levels in the first week of June, before the ceasefire was announced.

Several factors are behind the downtrend, with lower demand, the result of the higher prices, and China’s authorization of new exports in late May being the main catalysts, experts told Nikkei Asia….

“The primary driver for the recent ‘free fall’ in the urea prices has been the lack of demand,” said Pranshi Goyal, senior urea analyst at commodity consultancy CRU Group. “May is a seasonally slow month. Moreover, poor affordability has deferred stocking up decisions, and buyers [are sitting still] in the hope that a resolution in the Middle East is reached soon.

“In June, price declines have extended further with the return of China, a key exporter, which had restricted its exports since the beginning of the year.”

The Chinese government has not publicly announced an easing of export curbs. However, Reuters reported in late May that it had issued fresh export quotas.

Analysts said the apparent move was in response to weaker domestic demand….

Analysts are divided on where prices are likely to go next. “The market is now watching how China acts in terms of its return to the export market,” Harry Minihan, head of nitrogen pricing at Argus Media, told Nikkei Asia. “That behavior will be one of the top drivers for price direction in the months ahead….

Other factors are also at play, according to Harri Kiiski, CEO of Brunei Fertilizer Industries. “The European and Australian [planting] seasons are over, in two months [prices] will start increasing again,” he told Nikkei Asia via text, responding to questions before the U.S.-Iran ceasefire was announced. “Demand is also dropping as farmers cannot afford [fertilizer], next step yields drop and crop prices start increasing.”

____

1 Note that on TRT, Trita Parsi seemed almost annoyed at the Iran denials that it had agreed to let the IAEA return to the former regime of extensive inspections, since he argued they would wind up conceding that. But this ignores that Iran is holding the line not just on substance but also process, that it is insisting that issues be settled in the manner stipulated in the MOU and not out of order. Iran is not prepared to entertain nuclear matters until a whole host of preliminaries have been resolved.

2As we wrote two days ago:

A further issue is that what the Pakistani negotiators say cannot be taken at face value. They have now twice, and highly visibly, been caught out over their skis, first in taking up the false Trump claim that the MOU was to be signed in 24 hours, as in on or right before Trump’s birthday. Now see:

A single source in Pakistan also provided Larry Johnson with the allegation that Iran sent a note to the US through the intermediaries that it would obtain a nuclear weapon and make a demonstration explosion if the US did not shape up. Experts on that beat who are at least friendly with Larry and some who even call him a friend such as Professor Marandi carefully but also strongly disputed his contention (Marandi at least twice and on the later one I saw, more firmly).

And now we know why we are seeing so many fabrications from top Pakistan officials. Recall that Miller is a former negotiator with Middle East experience:

I had seen the nuclear weapon story from Pakistan via Johnson as pro-Israel, as meant to substantiate Iran’s bad intent and capabilities. Fortunately it did not wind up being received that way.

3 A detailed and even-handed effort to make sense of competing claims. This is very solid but IMHO does not sufficiently allow for the US having been less truthful through this process (Twitterati even point out they regard Tasnim as more reliable than the US press, which is largely dependent on claims by Trump and his officials):

4 The big reason for the disparity and resulting uncertainty is the age of the salt caves (they have been in service far longer than intended when created in the early 1980s) plus poor management practices. As we wrote recently in comments:

See from AAPG in 2016:

The U.S. Strategic Petroleum Reserve (SPR) is facing significant challenges related to the storage and availability of its crude oil resources. Approved for construction by the 1975 Energy Policy and Conservation Act (EPCA), the storage sites were envisioned to be needed for 25 years and are subject to an estimated five drawdown cycles (Shages, 2014). In retrospect, the design has not matched actual use, and this has led to degradation of the SPR and impacted its ability to perform its function.

The SPR stores crude oil (either sweet or sour) in 62 underground salt caverns located at four different sites in Texas and Louisiana. The official storage capacity is 727 million barrels, based on sonic measurements. A 2010 study concluded there was a significant mismatch in design and use of the storage caverns. Instead of the initial estimated five large drawdown cycles, a large number of small drawdowns occurred over the previous 20 years. From 1996 through 2014, there were 14 instances of oil removals less than 10 million barrels. These multiple drawdowns have caused cavern deformation, salt falls and other damage to the cavern integrity. In addition, these underground salt caverns are shrinking due to tectonic stresses. The cavern shrinkage (aka closure) is estimated to be approximately two million barrels per year – but may be significantly higher.

Done for today! See you tomorrow!

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8 comments

  1. The Rev Kev

    ‘Nevertheless, it not only describes how US diesel inventories are critically low (only 20 days!) but even more worrisome, how AI datacenter demand for diesel for generator backups will wind up taking priority over other uses due to the way datacenter power agreements are constructed.’

    Wait a minute, wait a minute. Are they talking about taking diesel out of general supply to keep AI data centers running? And away from more mundane uses such as diesel for trucks to restock supermarkets and diesel for emergency services? If supply gets really, really tight, I can see some of those data center being attacked by some very hangry people.

    Reply ↓
    1. Yves Smith Post author

      Thank you for calling that out. Yes, that is correct. Listen to the talk. The data center deals provide for extremely high penalties in the case of outages, as in backup generators out of diesel. So if the data centers are at risk of that, they will outbid all other users to get supplies.

      Reply ↓
  2. Frank

    If the longer the strait of H is closed the more likely a depression becomes isn’t it in Israel’s best interest to NOT impede the ‘deal’ and hopefully forestall a depression? Otherwise a depression would disable the US’s ability to make armament’s and get them to Israel. Wouldn’t that leave Israel almost completely defenseless.
    We know that Iranians are thorough long-range planners and have marshaled their resources so they could confidently attack Israel.

    Reply ↓
  3. ambrit

    Re. the observations by the shot down US airman; I believe that Stephenson in his novel “The Diamond Age” described Mr. Lee’s Greater Hong Kong as utilizing exactly such a “drone swarm” as its primary physical defensive tool. The physical boundaries of the Honk Kong ‘burbclave’ of Mr. Lee’s Greater Hong Kong were described as being patrolled by ever moving and shifting “clouds” of mini drones. A functionality imagined by art is becoming ‘real’ life? A cynic might ask: What came first? The explosion or the hand grenade?
    Stay safe. Avoid residing on databases.

    Reply ↓
  4. Yves Smith Post author

    Done for today! Please refresh this page and re-skim if you were an early arrival. We have important last-minute additions, an interview with John Dizard and updates from Lebanon.

    Reply ↓
  5. The Rev Kev

    The Trump regime keeps on making up all these bs stories about what the Iranians agreed upon, aided and abetted by the Pakistani regime. One of note that came out of the blue was about the Iranian ballistic missile program. That was never talked about and is not even in the MoU. This is an Israeli demand this that they got the US to slip in. I think that it was Pezeshkian that pointed out that without their ballistic missiles, that the US and Israel would have turned the whole of Iran into a new Gaza and I think that he is right. Having to fight a country with the ability to shoot back is real off-putting it seems.

    Reply ↓
  6. les online

    Trump (USA) is seeking an accommodation with Iran…
    It will result in a new area-wide security arrangement (excluding USA)…
    Result: USA proxy Israel will have to give up its Grater Israel ambitions,
    will be corralled within its own borders (Maybe even the UN’s 1967 border,
    and, ‘The Right of Return’ Israel will have to resolve)…
    …….
    Making out that Iran’s the one being an arsehole is Trump/Vance playing
    to the US electorate… It implicitly makes the MoU “A Great Decision” by
    Trump… So, when the energy shortages hit it will be easy for the electorate
    to believe Iran’s ‘intransigence’ is to blame…

    Reply ↓
    1. Yves Smith Post author

      Trump can try that but the US public knows the war was Trump’s doing. And the press is no longer falling in much with him either. We pointed to the War Powers resolution. The fact that even the Israel Lobby captured Congress has gotten out of bed to make this wet-noodle lashing says they can see the unhappiness in the body politic. And after Trump has been saying oil is now gushing through the Strait of Hormuz, pray tell how can he scapegoat Iran about the energy cliff? The media will play his recent claims about higher than evah oil transits.

      Reply ↓

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