By Parisa Hafezi and Katharine Jackson
DUBAI/WASHINGTON, Aug 17 (Reuters) - Iran will shift to a "fully offensive" military posture because efforts to negotiate a permanent end to the war with the U.S. have stalled, a senior Iranian official told Reuters on Monday, as Washington ruled out extending a temporary ceasefire agreement.
Outward progress towards peace talks and a resumption of oil tanker traffic through the strategic Strait of Hormuz has ground to a halt, threatening to extend the conflict that the U.S. and Israel launched with attacks on Iran on February 28.
"Iranian entities must be prepared to escalate tensions in the Strait of Hormuz and wider region, as Iran will be ready to make decisions and take action on difficult decisions," the Iranian official said, adding that Tehran would conduct a "timely and precise" military attack to break the U.S. naval blockade if diplomacy failed.
A memorandum of understanding signed in June to end the war had given Iran and the U.S. until Monday to reach a final peace agreement.
Signed on June 17, the memorandum set a 60-day time frame for a broader deal on Iran's nuclear programme and U.S. sanctions.
The agreement, which declared the "immediate and permanent termination of military operations on all fronts," quickly unravelled over a dispute about control of the Strait of Hormuz, the narrow waterway through which a fifth of global oil and liquefied natural gas flowed before the war.
Asked by reporters on Monday if the U.S. was seeking to extend June's interim agreement, U.S. President Donald Trump said no.
BACK CHANNEL TO IRGC
In one glimmer of diplomacy, media reports said Trump had opened back-channel discussions with the Islamic Revolutionary Guard Corps, which has become more powerful during the war and controls large parts of Iran's armed forces and the economy.
Axios, citing two sources with direct knowledge, reported that former Director of National Intelligence Tulsi Gabbard spoke with an Iraqi Kurdish leader with close ties to the IRGC, and that through this intermediary the U.S. delivered a message to IRGC commander General Ahmad Vahidi. Fox News later reported that Trump confirmed the report in a telephone interview.
The Trump administration was concerned whether Iranian negotiators across the table actually spoke for the IRGC, Axios said, at a time when Reuters was reporting that Vahidi had become a pivotal figure. Vahidi responded that he was aligned with the Iranian negotiators, Axios said.
"I can't go into the details of it, but I will say that the conversations between the U.S. government and different areas of the Iranian government at all areas is probably more robust than it's maybe ever been," Jared Kushner, Trump's son-in-law and special envoy, said in a separate interview with Fox News Channel’s Chief Foreign Correspondent Trey Yingst on Monday.
TRUMP THREATENS TO BOMB OMAN
Iran said point 5 of the Memorandum of Understanding gave it the right to manage the strait, which it shares with U.S. ally Oman, while the U.S. rejected that interpretation. Hostilities resumed as Iran began firing on vessels it said were trying to sail through Hormuz on an unapproved route, and Trump said on July 7 that the pact was "over."
The Iranian official told Reuters the U.S. must meet the entirety of the MoU's provisions within a few weeks as a precondition for further negotiations.
Even as Iran projects resilience in the war, its leaders are worried that a threat of more economic punishment could increase hardships, reignite unrest and further erode the Islamic Republic’s legitimacy, according to three Iranian officials.
Iran entered the war with high inflation, a weakening currency, energy shortages, sanctions and deep structural weaknesses, and must now contend with damaged infrastructure, disrupted trade, lost production and the cost of rebuilding.
Iran has separately been negotiating an agreement on managing the strait with Oman and says they are close to a deal.
Trump responded to those negotiations with a threat against the Gulf state, a longstanding U.S. security partner.
"If Oman gets in the way, we'll bomb the shit out of them," Trump told Fox News.
Thousands of people have been killed in the conflict, mainly in Iran and Lebanon. Iran has bombed U.S. military bases and infrastructure in countries including Oman, Jordan, Kuwait, Israel, the United Arab Emirates and Saudi Arabia.
Trump warned Americans in a speech at a rally on Friday to prepare for continued high fuel prices as a result of the war.
Benchmark Brent crude oil futures have surged during the conflict, hitting a peak of $126 a barrel, roughly 75% above pre-war levels. Brent crude settled more than $2 higher on Monday to $90.87 a barrel.
For Americans who will vote in November congressional elections, gasoline prices have risen above $4 per gallon, up from less than $3 before the war, according to the automotive group AAA.
(Reporting by Parisa Hafezi in Dubai, Katharine Jackson in Washington, and Costas Pitas in Los Angeles; Writing by Alex Richardson, Jonathan Allen and Daniel Trotta; Editing by Hugh Lawson and Sanjeev Miglani)
