US proposes $10 billion fund with Arab allies to bypass Strait of Hormuz

The plan comes as Iran hardens its terms for ending the standoff and mediators struggle to schedule talks.

The United States has proposed a $10 billion fund with Arab allies aimed at building a way around the Strait of Hormuz, the narrow waterway that carries a large share of the world's seaborne oil.

The proposal follows weeks of rising tension in the strait. Iran's Revolutionary Guard has claimed it struck vessels there, prompting Gulf capitals to urge Washington not to escalate. Iran's parliament has separately moved to fine ships a 20% transit charge for breaching its rules, and Tehran has said it will detain vessels until that fee is paid. IRGC spokesman Hossein Mohebi has said Iran has hardened its conditions for ending the confrontation with the US after an earlier deal collapsed.

Arab mediators are pushing to arrange a US-Iran meeting on the sidelines of the UN General Assembly to ease the crisis, but no such meeting is currently scheduled. Iran has demanded the blockade be lifted before talks proceed. In the US, retail diesel prices have climbed above $6.50 a gallon for the first time, prompting Republican lawmakers to push for a ban on diesel exports.

The size and structure of the fund signal that Washington is preparing for a Hormuz disruption that could last, rather than betting on a quick diplomatic fix. With Iran holding to its demand for a blockade removal and mediators still trying to fix a date for talks, the proposal reads as a hedge against continued tension. Energy markets remain exposed to supply shocks even though recent diplomatic activity and steadier flows through the strait have taken some of the immediate pressure off prices.