Ultimately, this will be framed as a “deal to end the conflict.” However, what this will actually be is a memorandum of understanding to establish the necessary preconditions to facilitate nuclear discussions. This means extending the actual negotiation phase for another 60 days.
Markets are still optimistic on the face of it, but given all that, a lot will depend on what happens in the Strait of Hormuz.
While the United States and Iran are still squabbling over some details, both sides know well the pieces of the puzzle required to complete the picture. The only question is whether they can fit it all together and make it last 60 days or more. It will be difficult, but I would not be surprised if we see some empty promises being made so that both sides can create the illusion of moving forward. You can read more about that below:
For markets, the biggest concern remains the threat to inflation expectations. Instead, energy prices and oil and gas supplies remain the most important factors at the moment. As such, the reopening of the Strait of Hormuz is the most important detail.
The United States wants to reopen the waterway unconditionally, that is, resume traffic similar to pre-war conditions. Let’s be real. This won’t happen.
Control of the Strait remains Iran’s largest and most important means of pressure in the talks. If they allow the waterway to be fully reopened, they will essentially abandon the conflict and there is no need for nuclear discussions. Without any influence, the United States can put pressure on Iran and impose any conditions on it without any resistance.
So, what happens here instead?
I bet that’s how it goes. The United States and Iran will tell a story that they have taken the next step toward “ending the war.” The Strait of Hormuz will be reopened slowly because “Iran will need time to clear mines along the waterway.” This may take up to 30 days or possibly longer. There will be no toll fees.
This allows US President Trump to boast of “winning” while at the same time allowing Iran to retain management of the Strait.
Iran will then continue to provide data, as it has done recently, about increasing traffic along the strait. But in reality, this is not the case. They are just Try to play on the optics of the dealWhich makes the United States have something to brag about at home.
In essence, it will be a theatrical show only until politics obscures market rule long enough before reality slaps down hard.
Actual shipping data is unlikely to match the narrative here. So, while market prices will reflect one story, physical prices and what businesses/consumers pay will be a different story.
All this while global oil market supplies continue to shrink further in the summer, when the pain will hit many economies hardest as well.
It’s a case of putting things off the road long enough and hoping the markets forget about it. Let’s see how that works.
