By Summer Said, Georgi Kantchev and Anat Peled

The Middle East was bracing Sunday as the Trump administration worked to finalize an agreement that would head off further conflict with Iran, but could come with significant downsides for the region.

There was widespread concern in Israel that the deal -- a memorandum of understanding that would get oil tankers and other traffic flowing through the Strait of Hormuz but put off the question of Iran's nuclear program until later -- would ease the economic and military pressure on Tehran when a regime Israel considers an existential threat is at a weak point.

Gulf Arab states, meanwhile, were eager to avoid further attacks on their energy facilities and get their oil sales moving again, but were grappling with the prospect that a deal would leave Iran with an overt role managing the strait and emboldened to use military threats to get its way in future disputes with its neighbors after the U.S. armada moves on.

Even in markets, which are certain to cheer the reduced risk that fighting could further crimp energy supplies, analysts were hungry for details of how quickly traffic would be let through the Strait of Hormuz and whether a deal could leave the strategic waterway more vulnerable to future disruptions.

"It feels like a breakthrough, but we've seen some of these points before and they always broke down once it got to competing interpretations of the details," said Rory Johnston, founder of oil research firm Commodity Context.

Mediators said they had hammered out a memorandum with Iran that would maintain the pause in fighting for at least 60 days and have passed it along to the U.S. for consideration. In essence, it extends the current cease-fire while the two sides reopen the Strait of Hormuz and begin talks on Iran's nuclear program.

The framework would begin with an agreement to end the war and the U.S. blockade of Iranian ports, while Iran would temporarily reopen the strait and waive transit fees for as long as negotiations toward a nuclear deal and a new arrangement for the governance of the waterway continue, mediators said.

Iran also demanded that the U.S. release some of its estimated $100 billion in frozen assets and lift some sanctions to allow Iran to sell its oil, they said.

The current draft of the memorandum of understanding lacks binding clauses on Iran's nuclear file, the mediators and Iranian state media said. Iranian negotiators, however, have indicated they would be willing to agree to not develop nuclear weapons.

For the next phase, Iranian negotiators indicated they could discuss a shorter suspension of uranium enrichment than the 20 years sought by the U.S. and that stockpiles of uranium enriched above 20% could be diluted inside Iran under regional supervision, the mediators said.

Mediators said the U.S. was insisting on a comprehensive deal that addresses Iran's stockpiles of enriched uranium. The talks could be extended with both sides' agreement, they said.

"We've made some progress over the last 48 hours," U.S. Secretary of State Marco Rubio said Sunday in India. The outlined deal would completely open the strait and address some of the key issues with Iran's nuclear program, he said.

Iran hawks in the U.S. including Sen. Lindsey Graham (R., S.C.) and Sen. Ted Cruz (R., Texas) criticized the idea of a deal that would just reopen the strait and potentially leave Iran emboldened. Rubio said Iran would need to accept U.S. terms and comply with them.

"The idea that somehow this president, given everything he's already proven he's willing to do, is going to somehow agree to a deal that ultimately winds up putting Iran in a stronger position when it comes to nuclear ambitions is absurd," he said.

Regional leaders encouraged Trump on a call Saturday to accept a deal with Iran to head off serious damage to regional energy facilities, Gulf officials said. While Gulf leaders are pushing for a diplomatic off-ramp, they were still deeply concerned that the current offer would leave them exposed, the officials said.

Iran had yet to discuss its missile program or provide guarantees that Gulf countries wouldn't be targeted by Tehran or allied militias in the region, the officials said.

"Iran enters the postwar period with leverage it didn't have before, because Hormuz is now an established bargaining chip," said H.A. Hellyer, senior associate fellow at the Royal United Services Institute. "The major risk for Gulf Arab states is that this leaves Tehran feeling emboldened and thus interested in making itself more, not less, of a nuisance to regional order."

Israeli Prime Minister Benjamin Netanyahu is set to convene his security cabinet Sunday night to discuss Iran, a person familiar with the matter said. Officials are worried about the lack of clarity around the second stage of the negotiations, when the U.S. and Iran would talk about nuclear issues.

The Trump administration took a similar multistage approach to thorny issues in the war in Gaza, pressuring Israel and Hamas to reach an initial deal to stop the fighting and pushing off questions of Hamas's disarmament and Gaza's future governance to a later stage. Seven months later, those issues have yet to be resolved.

Israel also worries the initial agreement could tie its hands in Lebanon, where it continues to fight with the Iran-backed militia Hezbollah. Netanyahu told Trump in a call Saturday night that Israel will maintain its freedom of action there, according to an Israeli official.

While Trump and Netanyahu continue to speak regularly, Israel isn't a party to the negotiations and has found itself frustrated by a lack of consultation and updates about the talks, the person familiar with the matter said.

Iran has been a core issue for the Israeli prime minister throughout his political career. A deal that is perceived as weak could hurt him with his hawkish electorate in tight national elections set to take place later this year. The war in Iran hasn't boosted Netanyahu's popularity, with his coalition projected to fail to secure a majority, according to polls.

An initial agreement to open the Strait of Hormuz could relieve some of the pressure on Trump. The war is unpopular in the U.S., and the constriction of energy supplies is pushing up the cost of gasoline and travel and threatening to create shortages as inventories are drawn down.

An agreement could knock down oil prices and ease the upward pressure on costs for transport, manufacturing, food and consumer fuels across the world. That could give central banks more room to hold rates steady or revive rate-cut plans, especially in oil-importing economies, while also supporting household spending and corporate margins.

Seafarers said some ships stuck in the Persian Gulf already have started moving toward the strait in anticipation of a deal that opens the waterway.

But the benefits of a deal would be uneven and take time to filter through. Fuel prices and shipping costs could take longer to decline than oil prices given depleted inventories and damage to production facilities, keeping an energy premium embedded in the global economy.

It also will take time to clear out the bottleneck in the Strait of Hormuz, typically the conduit for about 20% of the world's petroleum supply.

A framework deal "reduces the risk of escalation and increases the chance the conflict would be over, which could start the path to rebuilding, repositioning and reopening of key supply chains," said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, a Washington-based think tank.

But, she said, that depends on whether the deal is merely another cease-fire extension or the start of a more lasting settlement. "A lot depends on the terms," she said.

Shippers will need to see an extended period of calm before they are confident enough to sail normally through the strait.

Assuming shipping traffic through Hormuz picks up in June, the U.S. Energy Information Administration recently forecast that the price of international benchmark Brent crude will average $89 a barrel at the end of this year and $79 in 2027. On Friday, front-month Brent closed at $103.54 a barrel. The price started this year around $60.

The conflict has already disrupted more than a billion barrels of supply. Shipping, insurance and freight costs are likely to normalize more slowly than crude prices.

The chief executive of Adnoc, the state-owned energy corporation of the United Arab Emirates, said recently that even if the conflict ended immediately, flows through Hormuz would take at least four months to reach 80% of prewar levels. Full flows, he said, wouldn't return before the first or second quarter of next year.

The conflict has also left a hefty repair bill. Rystad Energy estimates that war-related repair and restoration costs for energy-linked assets in the region would carry a price tag of as much as $58 billion.

Write to Summer Said at summer.said@wsj.com, Georgi Kantchev at georgi.kantchev@wsj.com and Anat Peled at anat.peled@wsj.com

(END) Dow Jones Newswires

May 24, 2026 08:33 ET (12:33 GMT)

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