• Internal divisions in Iran between President Pezeshkian and the Revolutionary Guard are complicating ongoing peace talks with the U.S.
  • Pezeshkian seeks release of frozen assets to boost the economy, while the Guard demands greater control over the Strait of Hormuz.
  • The rift risks delaying negotiations and could heighten risks for global shipping and oil markets.

Fragile Prospects for a Deal

Tehran's leadership is increasingly at odds over how to approach negotiations with Washington, according to people familiar with the matter. President Masoud Pezeshkian is pushing for the release of billions of dollars in frozen assets abroad to shore up Iran's struggling economy, while the Revolutionary Guard insists on securing more control over the strategic Strait of Hormuz as a condition for any agreement.

The competing demands have left U.S. officials grappling with unclear signals from Iran, slowing what was already a painstaking process. “Talks are ongoing, but there are significant internal dynamics at play,” one diplomat involved in the mediation said, speaking on condition of anonymity.

Hormuz Leverage

The Guard's focus on the Strait of Hormuz, through which about a fifth of the world's oil passes, reflects its desire to maintain a key source of leverage. Any concession on waterway security would be a major shift in Iran's strategic posture, analysts say. “The Guard sees Hormuz as its trump card,” said a former Iranian official. “Giving that up without substantial guarantees is a non-starter.”

For Pezeshkian, the urgency is economic. Iran’s inflation remains above 40%, and a lifting of sanctions could provide immediate relief. “He needs a win fast,” said a Tehran-based economist. “But the Guard is playing a long game.”

Market Jitters

The standoff is already rippling through energy markets. Oil prices edged up 1.2% on Monday on concerns that any breakdown in talks could lead to heightened tensions in the Gulf. Analysts warn that even a delay could fuel volatility. “The market is pricing in a slow bleed rather than a sudden disruption, but that could change quickly,” said a senior oil trader.

Diplomatic efforts, mediated by Qatar and Pakistan, continue, but progress has been “frustratingly slow,” according to a Western official. A proposed framework that offered phased sanctions relief in exchange for limits on Iran's missile program and regional influence has yet to gain traction.

What Happens Next?

Without a unified Iranian position, a breakthrough remains elusive. Pezeshkian's administration has tried to assure the U.S. of its commitment, but the Guard's public posturing undermines those efforts. “We want peace, but not at any price,” a senior Guard commander said in a state-run interview last week.

The coming weeks will be critical, as Iran faces a deadline to respond to the latest U.S. proposal. Failure to do so could prompt Washington to ramp up economic pressure, further destabilizing Iran's economy and regional stability. Meanwhile, shipping companies are already reviewing contingency plans for any disruption at Hormuz.

Correction: An earlier version of this article misstated the volume of oil passing through the Strait of Hormuz. It is about 20% of global oil consumption, not 30%.