An MOU is NOT an agreement

Trump is telling the world that an agreement will be signed immediately ending the Hormuz crisis. He’s wrong on both. It will only be a Memorandum of Understanding — an MOU.

“It is against this background that we must consider the dollar’s future. It is over-owned by foreigners who have a diminishing need for them and are moving their monetary reserves into gold. It is a process likely to accelerate as a result of America’s defeat against Iran, a factor of which markets are not yet sufficiently aware. As a further disincentive to hold dollars, China’s yuan is in the ascendent.”

Introduction

It appears that the Pakistanis have managed to get Iran and America to agree to talk. The start of the process is a Memorandum of Understanding, which only lists the topics to be resolved. Sixty days are to be put aside to resolve these issues. The last of these is the nuclear issue, because that will require American presence or representation on Iranian soil to oversee the de-enrichment of Iran’s uranium. In any event, Iran insists on its right to maintain her domestic enrichment capability under the Nuclear Non-Proliferation Treaty.

Iran’s other principal red lines are as follows:

· Israel to withdraw completely from Lebanon and cease its attacks on Hezbollah.

· Iran’s support for regional allies like Hezbollah, Hamas, Houthis and others.

· No interference in her ballistic missile program.

· The return of Iranian funds and assets confiscated by the US and her allies.

· The removal of all sanctions on Iran’s energy and other exports.

· Iran to retain control over the Strait of Hormuz and the right to charge fees to shipping.

Clearly, it is America which wants to end the conflict. Iran will almost certainly insist that Hormuz will remain closed until America agrees to accept these red lines in a binding agreement because it is in her power to do so and maintains maximum pressure on the Americans. Therefore, if an MOU is signed, we should expect at the least a period of up to sixty days before traffic is allowed to flow freely through Hormuz which takes us into August. And if the US prevaricates, or Israel continues attacking Lebanon, refuses to withdraw and continues to attack Iran’s regional allies, Hormuz will almost certainly remain closed to general shipping until Iran’s terms are accepted, or the US withdraws its military from the region.

The one thing that western capital markets don’t appear to understand is that