Iran and US closer than ever to peace deal, but clash over frozen assets and nuclear terms

A three-month war and fragile truce

The war began on 28 February when the United States, alongside Israel, launched military operations against Iran. A ceasefire took effect on 8 April and has largely held, though the Strait of Hormuz remains blocked and Israeli forces continue operations in Lebanon and Syria. Diplomatic efforts accelerated in recent weeks, with Pakistan mediating between the adversaries.

The Islamabad Memorandum

On 12 June, Pakistani prime minister Shehbaz Sharif announced that a "final, consensual text" of a peace agreement had been reached. Sharif wrote on X that "peace has never been so close." Iranian foreign minister Abbas Araghchi added that the "Islamabad Memorandum of Understanding has never been this close." A senior Trump administration official told reporters that confidence in signing the deal had risen from 75% to 85%, though not yet 100%.

The Islamabad Memorandum of Understanding has never been this close.

Clashing interpretations

Despite the upbeat language, the two sides presented sharply different versions of the document. Washington says the agreement will reopen the Strait of Hormuz, dismantle Iran's nuclear programme and remove enriched uranium from the country. Vice President JD Vance insisted that "the Iranians will not receive cash, nor will funds be released simply for signing an agreement or attending a meeting." Tehran, however, conditions any deal on the release of frozen Iranian assets, guarantees that Israel will not attack Lebanon, and a 60-day postponement of talks on its nuclear programme and the status of the strait. Iranian state media published a 14-point draft reflecting those demands.

The agreement is structured to ensure that US and allied concerns are prioritised and to ensure that, if the Islamic Republic of Iran meets its obligations, economic benefits will reach both them and the whole region.

Israel's red lines

Israeli defence minister Israel Katz declared that Israeli forces "will not withdraw from the security zones in Lebanon, Syria and the Gaza Strip," pushing back against the memorandum's inclusion of a Lebanon ceasefire. Iran insists that the truce covers all fronts, including Hezbollah in Lebanon, where over 3 700 people have been killed. Prime minister Benjamin Netanyahu confirmed that Israel will not be a party to the memorandum.

Next steps

A senior US official said the agreement could be signed "in the coming days," possibly this weekend in Europe; Switzerland has already offered to host the ceremony. Vice President Vance would represent Washington, while President Trump attends his 80th birthday event at the White House on Sunday before travelling to the G7 summit on Monday. Once signed, the memorandum would freeze hostilities indefinitely and give both sides 60 days to negotiate the thorniest issues.