When Donald Trump announced a week ago that the United States and Iran had reached a broad peace framework after lengthy talks, the claim merited considerable skepticism. The US president's track record on similar statements offered ample grounds for caution, and that skepticism only began to ease once other parties to the talks corroborated the agreement.
Markets, predictably, responded to the news almost immediately, particularly to the commitment by both the US and Iran to urgently reopen the Strait of Hormuz. Oil prices fell by roughly 15%, to below $80 (€69.8) per barrel, while gas prices also dropped. Equity indices rose in parallel, supported in part by the record-breaking initial public offering (IPO) of Musk's company, SpaceX.
This reaction reflects a broader reality: the global economic outlook for the months and years ahead depends substantially on the uninterrupted functioning of the world's principal trade and energy route.
Should the agreement's terms hold and tensions in the Middle East genuinely subside, the deal would carry significant positive implications. The damage already inflicted, however, means that any recovery will be gradual rather than immediate. Moreover, the memorandum leaves several of the most consequential issues unaddressed.
Reopening the Strait of Hormuz Will Take Months, Not Days
Trump's call for the “ships of the world” to start their engines following the agreement's announcement obscures the complexity of what lies ahead. Reopening the strait is far from simple.
The status quo bears emphasizing in this regard: the strait remains mined, a condition particularly acute in the corridors that previously carried the highest volumes of traffic.
Although Iran promised in the 14-point memorandum that it would “immediately take steps to ensure that the movement of merchant ships from the Persian Gulf to the Sea of Oman and vice versa”, the agreement anticipates that the pre-war daily volume of traffic will be reached “within 30 days”.
Trump has announced that “ships are starting to move” along the southern route past the coast of Oman, yet the available data offers a more measured picture. Shipping-tracking websites indicate that transit volumes are only approaching, not exceeding, the highest daily figures recorded during the conflict, suggesting the rebound remains partial at best.
Mine clearance, moreover, is only one variable among several constraining a faster recovery. Additional structural factors are working against the optimistic timeline Trump has put forward.
The war has altered how shipping oil from the Persian Gulf is perceived, and that altered perception is unlikely to dissipate quickly. Its effects will be visible not only in pricing, through an elevated risk premium, but also behaviorally, as some shipping operators opt to redirect their business elsewhere rather than absorb the residual risk.
Oil from the Persian Gulf will, naturally, continue reaching the market, with traders less averse to risk stepping in to fill the gap. The transition, however, will not be instantaneous.
A further lag stems from logistics: ships previously deployed on Middle East routes must first complete substitute shipments elsewhere before they can be redeployed to their original routes and suppliers.
The most consequential variable, though, is the pace at which producers themselves can restore output. According to Frédéric Lasserre, an oil trader at Gunvor, quoted by The Economist, large fields producing lighter crude are likely to be the first to reach full capacity, within roughly three months.
Per the magazine's analysis, total production in the Persian Gulf is projected to reach only 30%–50% of February levels by mid-July, with a return to 90% of output unlikely before the end of the year.
Pre-War Prices Are Still Months Away
Supply will accordingly remain on a recovery path for several more months, a trajectory that will, in turn, continue to determine price levels.
Notably, prices never approached the worst-case scenario of $200 (€174.5) per barrel. This outcome reflects two compounding factors: the substantial volumes released from government and corporate reserves, and a partial contraction in demand, both of which delayed the point at which physical shortages would have materialized.
According to Aldo Spanjer, head of commodity strategy at BNP Paribas Markets 360, writing in the Financial Times, a structural divergence emerged between the energy sector's focus on medium-term shortage risk and traders' narrower concern with spot availability, that is, whether oil was physically accessible at a given moment.
The Financial Times reports that traders, too, anticipate an oil surplus in the near term, with an estimated 160 million barrels expected to become stranded. This is consistent with the International Energy Agency's outlook, which projects a substantial surplus emerging by 2027 as production ramps up across producing countries.
These bullish projections, however, warrant scrutiny. They presuppose a smoother resolution to the challenges already outlined, namely the pace of production restoration, the clearing of mines from the strait and the persistence of elevated shipping risk, than current conditions suggest is likely.
Morgan Stanley's near-term analysis points to a markedly different picture. The bank forecasts a supply deficit of 3.4 million barrels per day for the third quarter, and projects that Brent crude for near-term delivery will trade around $90 (€78.5) over the following three months before declining toward $80 (€69.8) in the fourth quarter.
Analysts expect pressure on oil prices to persist into next year, as countries replenish their strategic reserves. OPEC, the oil cartel, also expects stronger demand next year.
Markets Are Pricing in a Peace That Does Not Yet Exist
The durability of the current ceasefire should not be overstated. The memorandum functions less as a comprehensive settlement than as a minimal framework enabling trade to resume, a structure shaped primarily by the acute pressure both parties faced rather than by genuine resolution of underlying disputes. Several substantive issues remain outstanding as a result.
Southern Lebanon illustrates this gap between text and practice. Despite the signing of the memorandum by the United States and Iran, Israel conducted strikes on positions held by Hezbollah, which responded in kind.
This undermines the memorandum's central claim, namely that “the United States, together with their allies in the current war, declare upon the signing of this Memorandum of Understanding an immediate and permanent end to the war on all fronts, including Lebanon”, a commitment that lost practical credibility almost immediately upon being signed. The subsequent ceasefire between Hezbollah and Israel on Friday has done little to resolve the underlying tension, which persists despite the formal cessation of hostilities.
Lebanon is not the sole point of vulnerability. Iran's nuclear program represents a comparable, if not greater, risk to the durability of the talks, and the parallels being drawn to the Obama-era nuclear deal of more than a decade ago are instructive. By most measures, Trump has so far secured no meaningful advantage over his predecessor's outcome, and an overly aggressive posture in the negotiations' second phase risks producing a similarly constrained result.
What the markets are pricing in, in other words, is a peace that does not yet exist. Should the talks falter and Trump make good on his threats to resume bombing, all of today's optimism, and with it the hope of easing prices, lower interest rates and faster growth, could vanish just as quickly as it appeared.