MoU on Life Support — Iran-US Exchange Strikes, Trump Threatens 'Complete the Job'

Saturday June 27 saw the most serious military exchange since the MoU. Iran struck the US Fifth Fleet HQ in Bahrain and Ali Al-Salem Airbase in Kuwait. US launched two waves of strikes on Iranian territory including minelayer capabilities. Trump threatened Iran 'will no longer exist.' MoU continuation talks scheduled for Sunday in Switzerland now in doubt.

The Islamabad MoU between the US and Iran — signed June 17 to end the Ramadan War — is on life support. Saturday June 27 saw the most serious exchange of fire since the ceasefire, with both sides now in direct military confrontation.

The escalation sequence:

Thursday June 25: The Ever Lovely, a Singapore-flagged Evergreen vessel, attempted to transit the Strait of Hormuz using the Omani corridor — a route coordinated by the IMO that bypassed Iran’s designated passage entirely. The IRGC struck the vessel with a one-way attack drone. Iran’s position: ships must use the PGSA (Persian Gulf Strait Authority) protocol and receive IRGC transit permits. Any vessel using the Omani route is a violating vessel.

Friday June 26: US CENTCOM launched airstrikes on Iranian missile and drone storage sites and coastal radar. The strikes were limited in scope — Larry Johnson characterized them as “symbolic” inflicting little damage. Iran’s IRGC Navy counter-struck US positions in the region, invoking Article 5 of the Islamabad MoU, which assigns responsibility for regulating Strait navigation to Iran.

Saturday June 27: The situation escalated significantly.

  • At 4:30 AM ET, Iran struck M/T Kiku, a Panama-flagged tanker carrying more than 2 million barrels of Qatari crude oil, headed to Fujairah. The vessel was attempting the Omani route without PGSA notification.
  • A second commercial vessel was struck near the coast of Oman around 11:30 AM local time, sustaining damage to its bridge.
  • Iran launched drone strikes on the former US Navy Fifth Fleet headquarters in Bahrain. Bahrain’s Foreign Ministry called it “a flagrant violation of its sovereignty.” Egypt, Kuwait, Saudi Arabia, and Qatar all condemned the strikes.
  • The US launched a second wave of strikes on Iran — this time notably broader: targeting military surveillance infrastructure, communication systems, air defense sites, drone storage, and minelayer capabilities. The addition of minelayer capabilities to the target set is a significant escalation in scope.
  • Trump posted on Truth Social: threatening the US “will be forced to militarily complete the job that we successfully started” and that “the Islamic Republic of Iran will no longer exist.”
  • At 2:00-3:00 AM local time Sunday, the IRGC launched missile and drone strikes on eight US targets, including Ali Al-Salem Airbase in Kuwait and the US Fifth Fleet HQ in Bahrain. The IRGC warned that “any potential new aggression” will have a “devastating response” and that violating the ceasefire “will lead to a complete halt in negotiations.”

What changed.

The MoU’s first paragraph declares “the immediate and permanent termination of military operations on all fronts.” Both sides are now in open violation. The US frames Iranian drone strikes on commercial shipping as ceasefire violations requiring retaliation. Iran frames every US airstrike as a ceasefire breach — positioning its own attacks on shipping and US bases as defensive enforcement.

MoU continuation talks were scheduled to begin Sunday June 28 in Switzerland. It is unclear whether they proceed.

The structural situation.

The fundamental dynamic identified in prior digests remains: the US negotiated the MoU from a position of physical fuel constraint, not strength. The SPR is near collapse. The diesel buffer is 13-18 days of practically deliverable supply. The US physically cannot sustain a renewed air campaign against Iran regardless of Trump’s rhetoric.

But the mechanism for escalation is local, not strategic: each side has defined the other’s actions as violations, creating a self-reinforcing cycle. Iran has established de facto control of the Strait through the PGSA system and is enforcing it with drones. The US is encouraging ships to use the Omani corridor — which Iran treats as a hostile act. There is no third-party arbiter to break the cycle.

Rates implications.

If the MoU collapses: the flow fiction is re-exposed. Hormuz traffic was already at 24% of pre-war levels per the June 26 digest. A return to open hostilities threatens to close the Strait entirely. Oil reprices for supply disruption — the $65-80 WTI range breaks upward.

If the MoU holds: the market’s complacency on flow normalization becomes the story. The physical supply situation is worse than prices reflect. The constraint is stock (SPR, diesel buffer), not flow — and stocks are running out.

Either path implies higher energy vol and upside risk to the long end via inflation expectations. The only question is whether the catalyst is a MoU collapse (immediate) or the slow realization that “ceasefire” doesn’t mean “normal” (grinding).