Deal Details

Deal to Restore Key Oil Route

After more than 100 days of war, the US and Iran have signed a deal to halt fighting. Crucially, this memorandum of understanding includes the reopening of the Strait of Hormuz, the world’s most important energy shipping route.

“Ships of the world, start your engines. Let the oil flow!” US President Donald Trump wrote on social media.

The US and Iran were originally scheduled to sign the deal in Switzerland, but the ceremony was cancelled after the parties decided to sign remotely on Wednesday instead. Three Saudi-flagged tankers passed the Strait of Hormuz just hours after. But it will likely take weeks for the route to return to normal as shippers want to ensure the strait is clear of mines.

So, What’s the Deal?

The agreement is a framework for a 60-day truce, not a finished peace treaty. It includes a ceasefire across all fronts, including Lebanon — although Israel has launched new airstrikes after the signing. 

• The Strait of Hormuz: Iran will allow free, safe passage for ships; the US lifts its naval blockade.
• Nuclear limits: Iran maintains its public commitment not to develop nuclear weapons. Details on the enriched uranium will be settled later.
• No to regime change: Both countries will avoid intervening in each other's internal affairs.
• Sanctions relief: The US will move all sanctions against Iran, including the UN ones, when the final peace deal is signed. 
• Frozen assets: The US will make all frozen Iranian funds “available.” The timing and the scope are unclear.
• Mega-fund: The US and regional partners will develop a $300B fund for reconstruction and economic development of Iran.

Relief Rally Takes Hold

Stocks jumped and oil prices fell when the news of the deal broke. The conflict pushed crude oil benchmark Brent as high as $126 per barrel, triggering what the International Energy Agency has called “the biggest energy crisis in history.”

• Brent crude fell about 5%, to roughly $83
• Asian equities surged: Tokyo’s Nikkei and Seoul’s Kospi indices up by about 5%
• Europe’s Stoxx 600 climbed modestly to a record high
• Safe-haven currency, the US dollar, weakened, while treasury yields dipped
• Gold gained 2.5%, as falling yields supported non-yielding assets

Investors are pricing in steadier growth with less inflation pressure and a lower likelihood of interest rate hikes by major central banks.

Iranian Barrels Back in the Play

The Strait of Hormuz is one of the world’s most important energy routes, with 20% of the world’s oil and liquefied natural gas exports moving through it before the war. Iran has effectively closed it since late February — as the fear of mines, drone and missile attacks, and armed speed boats has kept most vessels from attempting a crossing.  

Tankers returning to the route means more physical supply reaching markets. Even though it will take time for traffic to normalize, the markets react to expectations.

Once sanctions are lifted, Iran will be able to resume oil exports, bringing a top-10 producer back into global markets.

Breakthrough Deal, Unfinished Business

The framework agreement cheered up markets globally, but the US and Iran still have thorny issues to tackle.

• Nuclear program: The US has been insisting on a 20-year pause on Iran’s uranium enrichment and wants to dispose of Iran's existing stockpile.
• Fate of Lebanon: Israel and Hezbollah are not parties to the framework, and Israel is refusing to pull out of Lebanon. For Iran, this is a sticking point.
• Iran’s proxy wars: The US wants Iran to stop funding Hezbollah, Houthis, and other militant groups in the Middle East.
• Hormuz tolls: The new deal allows Iran to negotiate “future administration and maritime services in the Strait of Hormuz” with Oman and other Gulf states, potentially leading to shipping charges.

In the US, the deal lands ahead of the November midterm elections, with fuel prices a key issue to voters.