By Tala Ramadan, Parisa Hafezi, Doina Chiacu and Simon Lewis
DUBAI/WASHINGTON, Aug 4 (Reuters) - Qatar said on Tuesday mediators were making progress in efforts to end the U.S.-Iran war, driving oil prices lower, although Tehran has denied President Donald Trump's assertion that talks are already under way.
Benchmark Brent crude fell more than 5% after the comments from Qatar, extending Monday's steep losses on hopes that an arrangement could soon be reached to restore traffic through the blockaded
Strait of Hormuz. But for now, the strait remained virtually shut, with another ship coming under attack while trying to cross it.
Trump and Qatar's Emir Sheikh Tamim bin Hamad Al Thani discussed efforts to narrow differences between Washington and Tehran and improve the prospects for a lasting settlement during a phone call on Tuesday, Qatar's Emiri office said.
It said the emir stressed the importance of dialogue and adherence to the U.S.-Iran Memorandum of Understanding of mid-June that provided for the immediate cessation of military operations.
Trump said on Monday that talks with Tehran had started and Iran faced a "last chance" to reach a deal. Iranian officials insisted no negotiations with the U.S. were taking place.
The U.S. president's comments on Monday followed his weekend decision to cancel plans for what he described as "massive attacks" on Iran, extending a pattern in which he has threatened major military action before pulling back and pointing to diplomatic contacts.
Iran's Foreign Ministry spokesperson Esmaeil Baghaei said talks with Oman over transit through the strait were positive and continuing, focused on establishing safe shipping lanes, state media reported. He added the route being negotiated was aimed at ensuring the sovereign rights and national security of both Iran and Oman.
Senior U.S. officials struck an optimistic tone, with Treasury Secretary Scott Bessent and Secretary of State Marco Rubio both pointing to progress in discussions aimed at reopening the strait, a corridor that normally carries about a fifth of global oil and liquefied natural gas shipments.
"There's been progress made in those talks, but not finality yet. We're hoping that will happen very shortly," Rubio told reporters, while Bessent said a deal with Iran on reopening Hormuz could be reached by Tuesday or Wednesday.
QUESTIONS ABOUT U.S. MILITARY STOCKPILES
More than five months into the war, concerns have been mounting about the sustainability of the U.S. military campaign. The U.S. Army has used up much of its stockpile of highly accurate long-range missiles during the war, according to three people familiar with the data, raising concerns about the military's readiness for future conflicts.
Trump has yet to achieve the objectives he set out at the start of the war: dismantling Iran's nuclear programme, curbing its ability to attack regional rivals and creating conditions for Iranians to overthrow their clerical rulers.
Qatar's Foreign Ministry spokesperson Majed al-Ansari said diplomatic contacts had reached "very progressive stages."
He said mediators including Qatar, Pakistan and Oman were coordinating closely to facilitate negotiations and exchange draft proposals between Washington and Tehran.
A senior Pakistani security official said: "Our sole goal at this moment is to make both parties at least agree to start talking."
SHIPPING RISKS REMAIN
Iran has halted most traffic through Hormuz while Washington maintains a blockade of Iran-related shipping and ports.
Yemen's Iran-aligned Houthis have also imposed a naval blockade on Saudi Arabia in the Red Sea, further restricting oil export routes.
A cargo vessel reported being struck by an unidentified projectile near the Strait of Hormuz off Oman's coast, according to the UK Maritime Trade Operations security agency. Maritime sources told Reuters on Tuesday the vessel was a dry bulk ship. Its crew abandoned the vessel and one seafarer was missing.
Later on Tuesday, India's Shipping Minister Sarbananda Sonowal wrote on X that a projectile had hit and sunk an Indian vessel near Yemeni waters, with all 14 on board rescued by Yemen's coast guard.
Iran has long demanded control over Hormuz, which it says it should share with Oman on the opposite shore. But Tehran rejected an Omani proposal last week that would have allowed shared oversight and the collection of voluntary fees from ships.
A senior Iranian source said Tehran is seeking full control over inbound shipping and visibility over outbound traffic, with the ability to intervene if necessary.
Giving Iran such control would be a major shift in the regional balance of power and make it more difficult for Washington to argue that "Operation Epic Fury", which Trump launched alongside Israel in February, had weakened Washington's longstanding foe.
"Their big advantage is that they can hurt the regional states and the global economy," said Michael Knights of the Washington Institute.
(Reporting by Reuters bureaux; Writing by Lincoln Feast, Ros Russell and David Brunnstrom; Editing by Clarence Fernandez, Peter Graff, Andrei Khalip and Sanjeev Miglani)
