Background
The Memorandum of Understanding (called “Islamabad MOU” text at Annex 1) between Iran and the United States, signed on June 17, this week completes 45 days of its stipulated 60-day period. Apart from formalising the ceasefire, it laid down mutually agreed-upon conditions for de-escalation through a pathway for negotiations on more contentious issues to achieve a final settlement. With only a fortnight remaining, the Islamabad MOU process has little to show: only one round of negotiations has been held, and the technical subcommittees tasked with follow-up have not recorded any tangible gains. Indeed, by the second week of July, the two belligerents began accusing each other of violating the 14-point MOU and declared their respective abeyance of its terms. On July 8, President Trump declared that the MoU was “over,” but that U.S. negotiators could continue negotiations. On July 18, the Iranian Deputy Foreign Minister said that Tehran was suspending the MOU implementation as the US violated it in multiple ways. The Iranian Foreign Ministry spokesman declared the same day that Iran was not talking with the Americans as it was busy defending itself from them.
Recent Developments:
The three weeks since July 11 have mostly been regressive to the MOU process. The two belligerents have been escalating hostilities that the Islamabad MOU was designed to prevent. The contretemps have been largely focused on diametrically opposite positions on control over navigation in the Strait of Hormuz, the conduit for a fifth of the global maritime crude trade. While Tehran asserts that Article 5 of the Islamabad MOU implicitly concedes Iranian control over the Strait, Washington insists that the vital passage reverts to being a free international waterway, as it was before the current hostilities began on February 28, 2026. Many other provisions of the MOU have also been contested, including ceasefire and Israeli withdrawal from Lebanon, the release of frozen Iranian assets, nuclear enrichment, the removal of the US sanctions and the sea blockade on Iran. An overhang of deepened mutual distrust and demonisation has vitiated the atmosphere as the tit-for-tat air attacks spiralled.
The current escalation began on July 7 with Iran firing projectiles on commercial ships crossing the Strait of Hormuz using the US Navy-escorted southern route hugging the Omani coastline without permission from its Persian Gulf Strait Authority, as stipulated by Tehran. In retaliation, the US struck at the Islamic Revolutionary Guards Corps (IRGC) assets used in the attack. This caused Tehran to declare the Strait of Hormuz to be closed again on July 11, and the US responded by imposing a new naval blockade of the entire Iranian coast and cancelling the sanction waiver for Iranian oil exports. Iran, in turn, retaliated by resuming missile and drone attacks on the American military bases in some neighbouring Arab countries. When the US expanded the targeting to Iran’s civilian infrastructure, Iran retaliated in kind by hitting similar assets in some Gulf countries. If the US attacks on its civilian infrastructure intensifies, Iran has threatened the resumption of the blockade of the Bab al-Mandeb Strait. On July 20, its Yemeni allies, Ansar Allah (“al-Houthis”), announced a blockade of Saudi ships at the Bab al-Mandeb, impacting the Saudi oil exports to Asia. On July 25, President Trump indicated that the 14-day bombing campaign on Iranian targets was being suspended temporarily to provide space for negotiations through mediators. However, after four days of pause, these attacks were resumed on July 29 as Iran and its allies persisted in their attacks on the ships crossing the two choke points as well as the American assets in Kuwait, Bahrain and Jordan. Analysts note a new trend in the escalatory spiral: Instead of defensively retaliating to the US air attacks, Iran has gone on the offensive, particularly in hitting both the military and economic targets. Analysts believed that some of the IRGC attacks on US bases were pre-emptive strikes meant to either disrupt CENTCOM’s offensive plans or to shape the incipient battles. Apart from declared Iranian air attacks on Jordan, Kuwait and Bahrain, mysterious and yet unclaimed drone attacks have taken place on vital economic targets such as Egypt’s Mediterranean LNG port of Damietta (July 31) and Saudi Arabia’s Abqaiq crude processing centre (July 28), the world’s largest. In response to the Abqaiq attack (claimed by al-Houthis), a US-Saudi combined air attack on a pro-Iranian Shia outfit in Iraq caused over 30 deaths. As a riposte to Mr Trump’s July 31 threat of joint US-Israel air attacks on Iran’s energy infrastructure, Iran’s foreign minister has unambiguously warned that Tehran would decimate similar infrastructure in America’s regional allies. This threat prompted the Saudi Crown Prince to talk Mr Trump out of the planned campaign, leading the latter to call off the campaign, claiming that “parameters of the deal with Iran” hinging upon free navigation through Hormuz and denuclearisation have been reached. This was categorically denied by Iran. Trump added that the negotiations are to resume on August 3, without providing any details. As Iran has denied any talks with the US, it is presumed that Trump’s reference is to the parleys currently underway between Iran and Oman. Despite Mr Trump’s belaboured pretence of “in-control triumphalism”, his frequent “blow hot, blow cold” rhetoric betrays his inability to extricate himself from a geo-strategic stalemate.
Under the severe uncertainty, any analysis of the Islamabad MOU and its future would be hazardous. Yet, given the global impact of the situation, this needs to be done to assess if the Islamabad MOU process can be revived – and if so, what could follow.
Islamabad MOU: An Analysis:
A closer look (Annex 2) at the MOU reveals that the signed text had multiple imprecisions and was loaded in Iran’s favour. To some extent, this was natural: Iran was not only a victim of a “War of Choice” waged by the US and Israel, but it was also able to withstand the aggression despite horrific losses and had blockaded the vital Strait of Hormuz. Tehran needed to be assuaged to facilitate an off-ramp for Mr Trump, pilloried both domestically and across the world, as Iran’s chokehold over the Strait of Hormuz disrupted the global economy, in general, and hydrocarbon prices, in particular.
However, most observers are surprised at several commissions and omissions contained in the MOU. While the MOU frontloaded several of Tehran’s maximalist expectations, it either omitted or parried Washington’s concerns, such as regime change, nuclear enrichment, restrictions on the proxies and missiles. While some of it could be due to the hurried timelines (the 2015 Joint Comprehensive Plan of Action, JCPOA, confined to the nuclear issue alone, took over two years to negotiate), the text betrays vagueness and an inexcusable inability to fully factor-in its implications. Apparently, Iranian negotiators played hardball and kept the White House squirming for an early exit. They internalised their JCPOA negotiation experience. They also noted how, in 2019, Trump had tamely signed the Doha Agreement with the ragtag Taleban setting the accelerated timetable for an ignominious exit by the US forces from Afghanistan, squandering hard-won gains of two decades of a bitter conflict in which 3,500 American servicemen perished and nearly $2.3 trillion was squandered. Further, Washington’s top two negotiators arrayed against Iran were essentially real estate contractors, apparently too focused on “clinch a deal” and move on, to book a profit. While they were Trump insiders, they had no diplomatic experience. The apparent disconnect between White House and each of the State Department and the Pentagon further weakened the US negotiating posture.
Pakistan Wades In:
Against this backdrop, at the height of the current conflict that began on February 28, Islamabad’s offer to act as a go-between found a receptive ear in the Trump White House and Pakistan waded into this “mother of all disputes.” Iran, being militarily cornered, warily conceded to Islamabad playing the role of a go-between. The June 17 signing of the Islamabad MOU was largely credited to the mediation by Pakistan, which basked in an adulatory halo. Apart from diplomatic goodwill, it also reaped pecuniary benefits, including the recent extension of a $3 billion Saudi credit facility. On July 22, Pakistan requested the US Treasury for a $10 billion “Bilateral Exchange Stabilisation Support Facility” with a five-year maturity.
While a complex deal among these two belligerents, completely distrustful of each other, was never going to be easy, an early disputation of the Islamabad MOU should prompt a critical review of Pakistan’s role. Subsequent circumstantial evidence suggests that Pakistan’s actions bore a significant responsibility for the unravelling of the MOU. It seems to have come up short on at least two counts. Firstly, it initially began as a “conduit” between the US and Iran but later donned the mantle of a “mediator.” Islamabad was apparently keener than the two belligerents to stitch up the text of the MOU to showcase itself as an efficient mediator. In the process, it focused more on the phraseology than the overall impact of the document. Secondly, Pakistan’s close rapport with the Trump White House seems to have been leveraged by Iran, its “Muslim brother.” Thus, Iranians cleverly converted Field Marshal Munir and Prime Minister Shahbaz Sharif as their alter egos, convincing them that Iran’s leadership was divided between IRGC-led Hardliners and beleaguered moderates, who were keen to negotiate a deal with the Americans. This classic “bad cop, good cop” Iranian fiction was spun to the gullible Pakistanis, who, in turn, convinced Mr Trump of the need to have a quick, magnanimous deal. Mr Trump, with his desperation for a prompt off-ramp, was more than willing to oblige. His intermittent statements, noting “the new Iranian leadership begging for a deal”, interspaced with threats of obliteration, show the extent of misinformation and make-believe of the “split and confusion” in Iran. (for instance, “Iran’s Leader is 90% gone”, Trump airily told an interviewer recently, citing no evidence). While Iran’s complex polity does have bitter policy divisions, on the current existential face-off with the “Big-Satan”, they are all on one page with the IRGC leading the way. For instance, the top two Iranian negotiators, the Majlis Speaker, Galibaf, is from an IRGC background, and Foreign Minister Araghchi has their full support. Yet both have been publicly “criticised” for being “soft negotiators”, but without being replaced or curbed.
In retrospect, Pakistan was ill-qualified to act as a “mediator.” Barring the ISI occasionally knocking heads of various Afghan factions together, it had not played such a role before. Although Pakistan has long offered its good offices for mediation between Iran and the Gulf Arab states, it never found any takers. It had little leverage with the two belligerents. Pakistan’s ties with the US and Iran were asymmetrical: While Asim Munir was Trump’s “favourite Field Marshal”, Iran was a distant neighbour despite over 900 kms of shared land border. Pakistan and Iran were divided by the Shia-Sunni split, lack of trade and people-to-people contact and Islamabad’s geostrategic ties with Arab monarchies and Turkey. In fact, mutual insurgencies across the long, arid and sparsely populated border had led to a short round of aerial skirmishes in January 2025. Iran has traditionally been suspicious of Islamabad’s close ties with Washington, its “Big Satan.” Last, but not least, Pakistan became a partisan state following the signing of a Strategic Mutual Defence Agreement with Saudi Arabia in September 2025. Some 13,000 Pakistani troops and an aircraft squadron were deployed in the Kingdom earlier this year, ostensibly to protect it from Iran.
The Unravelling:
Observers believe that soon after hurriedly signing the Islamabad MOU, Mr Trump realised his folly of having played into Tehran’s hands. In particular, he tried to wriggle out of having virtually conceded Tehran control over the Strait of Hormuz under the MOU’s Article 5. To this end, the US first sought to involve the IMO in creating a safe passage through the Strait for “the stranded seafarers.” When this gambit failed, a corridor hugging the Omani coastline under the US protection was attempted. As Iranians did not want to let go of their acclaimed control of the Strait of Hormuz, they attacked some of these ships creating a tit-for-tat escalation spiral at the root of the current gridlock.
Regional Players
The US allies, from Israel to the Arab regimes, have also been shocked by the US tamely agreeing to most Iranian terms. Witness, too, how the White House has quietly downsized Pakistan, with President Trump no longer in effusive bromance with Munir. No Pakistani emissaries have rushed to Tehran to douse the hostilities on the ground and resume the negotiations. Over the last month, the US has reintroduced Qatar and Oman into negotiations with Iran during the past month for a deal proposing collective management of the Strait of Hormuz by the Gulf littoral states. Observers also await the Trump administration’s decision on Islamabad’s request for $10 bn credit facility to signal the US reward for Pakistan. Nearly two-weeks on, the US Treasury is yet to respond to the proposal.
Prognosis
Most observers expect, in the foreseeable future, continuation of the current regional dynamics comprising of a mix of three components: An episodic war of attrition, punctuated by Trump’s hyperbolic (but mostly reversible) threats and some indirect – and mostly desultory – negotiations. Iranian leadership, on the other hand, seems to have concluded that the run-up to the general elections in both the United States and Israel within the next 100 days will preoccupy their respective leaderships and the results would weaken them over time. Although Iran, too, faces prospects of domestic turbulence, it perceives that the time is on its side. Thus, its war strategy is a provocative melange of defiance, dare and deterrence. Tehran has not only persisted with the blockade of the Strait of Hormuz but has also encouraged its Houthi allies to impose a partial blockade in Bab al-Mandeb. Meanwhile, it hopes to browbeat the Gulf monarchies into a more accommodative posture as they grow more sceptical about Washington’s security umbrella. While Islamabad’s role as a future mediator in the US-Iran conundrum may be uncertain, Iran and Pakistan have rediscovered each other’s utility. In a perverse twist, Pakistan hosted a ministerial meeting in Islamabad this week to discuss a bilateral Free Trade Agreement with Iran, currently subject to severe economic sanctions and embargo under Trump’s maximum pressure strategy.
Irrespective of its eventual denouement, the ongoing five-month-old fracas has important takeaways for the future. It has underlined some of the conventional strategic wisdoms, such as the imperative need to have objective intelligence on the enemy’s capabilities, a good tactical-to-strategic roadmap, a comprehensive war strategy including clarity of attainable objectives, an exit off-ramp, a consistent and morally defensible transition from war to negotiations. Although economic coercion has been extensively used by both sides, its efficacy still needs validation. The need to have a robust political and military chain of command has also been emphasised. It has also introduced several effective strategic innovations such as asymmetric warfare techniques, swarming by drones and missiles, use of proxies and leveraging of geo-economic assets. At a different level, the universally accepted laws of war have been widely ignored during the conflict, which needs to be reversed. Overall, the era of unipolarity and military dominance through state-of-the-art weapon systems appears to be overstated. These pointers would profoundly influence the future course of events not only in the Gulf but beyond.
Pakistan now joins the rest of the world, resigned to passively suffering the mushrooming eco-political consequences of the US-Iran conflict currently under suspended animation. However, it’s too early to write Islamabad off from what is its bread-and-butter issue. It may be itching for another opportunity for its brand of shuttle diplomacy. On the other hand, Islamabad may have Plan B for a post-conflict regional tension: it would perhaps jockey for a role as Protean Guard in “securing” the Arab monarchies, either singly or in concert with like-minded countries such as Turkey and Egypt. According to some reports, Kuwait has already approached Pakistan for such a role. At the same time, for various reasons, Islamabad is shy of confronting Iran in the Gulf; it would wait till the hostilities have subsided. Till then, Pakistani leadership could be rueing the adage, “Success has many fathers, but failure is an orphan.”
Annex 1
Memorandum of understanding between the US and Iran
(formally signed Friday, June 19, 2026)
Source: BBC from a US official
- The United States of America and the Islamic Republic of Iran and their allies in the current war, by signing this MOU, declare the immediate and permanent termination of military operations on all fronts, including in Lebanon, and undertake from now on not to initiate any war or any military operation against each other, and to refrain from the threat or use of force against each other, and ensuring the territorial integrity and sovereignty of Lebanon. The final deal will confirm the permanent termination of the war on all fronts, including in Lebanon and other provisions of this paragraph.
- The United States of America and the Islamic Republic of Iran undertake to respect each other’s sovereignty and territorial integrity, and to refrain from interfering in each other’s internal affairs.
- The United States of America and the Islamic Republic of Iran commit to negotiating and achieving the final deal in maximum 60 days, extendable with mutual consent.
- Immediately upon the signing of this MOU, the United States of America will begin the removal of its naval blockade and any disturbances or impediments against the Islamic Republic of Iran, and it will fully end the naval blockade within 30 days. During this period, the traffic of vessels will be in proportion to the numbers of pre-war traffic being restored by the Islamic Republic of Iran. United States of America further undertakes to remove its forces from the proximity of the Islamic Republic of Iran within 30 days after the final deal.
- Upon the signing of this MOU, the Islamic Republic of Iran will 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. The traffic of commercial vessels will immediately start, and considering the need for removing the tactical and military obstacles and de-mining by the Islamic Republic of Iran, will be instated within 30 days. The Islamic Republic of Iran will conduct dialogue with the Sultanate of 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.
- The United States of America undertakes with regional partners to develop a definitive, mutually agreed plan with at least $300 billion for the reconstruction and economic development of the Islamic Republic of Iran. The mechanism for the implementation of this plan will be finalised as part of a final deal within 60 days. All required licenses, waivers and permissions needed for the relevant financial transactions will be granted by the United States of America.
- The United States of America undertakes to terminate all types of sanctions against the Islamic Republic of Iran, including the United Nations Security Council resolutions, i.e. International Atomic Energy Agency (IAEA) Board of Governors resolutions and all unilateral U.S. sanctions, primary and secondary, in an agreed upon schedule. As part of the final deal, the Islamic Republic of Iran and the United States of America acknowledge the critical importance of the sanctions termination issue above mentioned, and express their intentions to immediately address these issues in the negotiations in order to achieve mutual agreement on them.
- The Islamic Republic of Iran reaffirms that it shall not procure or develop nuclear weapons. The United States of America and the Islamic Republic of Iran have agreed to resolve the disposition of stockpiled enriched material, pursuant to a mechanism that will be mutually agreed upon in accordance with the schedule mentioned in paragraph seven, with the minimum methodology to be down. Blending on site under the supervision of the IAEA. The two parties also agreed to discuss the issue of enrichment and other mutually agreed matters related to the Islamic Republic of Iran’s nuclear needs, based on a satisfactory framework being agreed upon in the final deal. The final deal will confirm the provisions of this paragraph. The United States of America and the Islamic Republic of Iran acknowledge the critical importance of the nuclear issues above mentioned, and expressed their intention to immediately address these issues in the negotiations in order to achieve mutual agreement on them.
- Pending the final deal, the United States of America and the Islamic Republic of Iran agree to maintain the status quo. The Islamic Republic of Iran will maintain the current status quo of its nuclear program, and the United States of America will not impose any new sanctions and will not deploy additional forces in the region.
- The United States of America undertakes that immediately upon the signing of this MOU and until the termination of sanctions, the U.S. Department of the Treasury will issue waivers for the export of Iranian crude oil, petroleum products and derivatives and all associated services, including banking, transactions, insurances, transportation, etc.
- The United States of America undertakes to make fully available for use the frozen or restricted funds and assets of the Islamic Republic of Iran upon the implementation of the MOU. The United States of America and the Islamic Republic of Iran will mutually agree on the procedures related to the release of these funds. During the negotiations. Such funds, whether retain the original account or transfer, shall be made fully usable for payment to any ultimate beneficiary designed by the central bank. Ultimate beneficiary designated by the Central Bank of the Islamic Republic of Iran. The United States of America undertakes to issue all necessary licenses and authorisations accordingly.
- The United States of America and the Islamic Republic of Iran agreed that an executive mechanism will be established to monitor the successful implementation of this MOU and the future compliance of the final deal.
- After signing the MOU, and subject to the beginning of the implementation of paragraphs one, four, five, ten and 11 of this MOU and the continuing implementation of these measures. The United States of America and the Islamic Republic of Iran will start negotiations regarding the final deal exclusively.
- The final deal will be endorsed by a binding United Nations Security Council (UNSC) resolution.
Annex 2
Comments on the MOU Text
A. The MOU includes the following references matching the maximalist Iranian demands:
Article 1: An immediate and permanent end to the war on all fronts, including Lebanon, and no hostile action against each other.
Article 4: Lifting the naval blockade and preventing any interference or obstruction, and withdrawing the US forces from the surrounding areas.
Article 6: Financing of at least $300 billion for the rehabilitation and economic development of Iran.
Article 7: Lifting all types of sanctions.
Article 8: Iran ‘reiterates’ that it will never produce nuclear weapons; the nuclear-related issues, including Iran’s nuclear needs, will be adequately addressed in a final agreement.
Article 9: The US and Iran will maintain the status quo on its nuclear program, and the United States will not impose new sanctions on Iran or strengthen its forces in the region.
Article 10: The US would issue waivers for exports of Iranian crude oil, petrochemical products and their derivatives, and all related services, including banking, insurance, transportation, and the like.
Article 11: The Iranian frozen or restricted funds and assets will be released and made fully available.
Article 13: Frontloading of the implementation of Articles 4, 5, 10, and 11, while the rest of the articles would be negotiated before final agreement.
Article 14: The final Agreement would be approved by a binding resolution of the UN Security Council.
B. The MOU excludes the following references matching the maximalist US demands:
- No mention of regime change. To the contrary, Article 2 specifically mentions “respect each other’s sovereignty and territorial integrity, and to refrain from interfering in each other’s internal affairs.”
- No specific mention of Iran’s nuclear enrichment programme, beyond Tehran’s reiteration that it will never produce nuclear weapons. All relevant issues “will be adequately addressed in a final agreement.” (Ref: Article 8)
- Article 5 concerning the Strait of Hormuz is hedgy and imprecise. It fails to mention free navigability under the UN Law of the Seas treaty. Instead, it merely commits Iran to “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.” It further adds: “Iran will conduct dialogue with the Sultanate of 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.”
- No mention of Iran’s ties with non-state actors in the region, such as Hezbollah, Hamas or al-Houthis.
- No mention of any limits or restrictions on Iran’s missile capabilities.
C. The emergence of a hiatus between the US and Israel over the Islamabad MOU was a substantive gain for Tehran. Their strategic partnership against Iran came unstuck on Iranian demand for a ceasefire in Lebanon as an integral part of the Islamabad MOU. This rupture has only partially been repaired by the Trump-Netanyahu Summit of July 28.
