Two-Week Pause

A Deal to Reopen the Strait

The US and Iran have agreed to a two‑week ceasefire, brokered by Pakistan, just hours before the deadline set by President Donald Trump. The deal includes reopening the Strait of Hormuz, a key shipping route that normally handles 20% of the world’s oil and liquefied natural gas (LNG) traffic.

The pause on the six-week-old war came after Trump threatened to destroy Iran’s “whole civilization,” targeting power plants and other key infrastructure. Israel, the US partner in this war, has agreed to stop attacks on Iran, but continues its operation against Lebanon.

Formal peace talks between the US and Iran are set to begin in Pakistan’s Islamabad on Friday.

Oil Plunges Below $100

The energy markets instantly latched onto hopes of the global oil traffic returning to normal.

• Crude oil: Global benchmark Brent plunged around 17% to around $91 a barrel. American oil WTI, which just recently overtook Brent in price, saw an even bigger tumble of 18% to $93.
• Energy stocks: Oil producers fell sharply after weeks of gains that were driven by higher crude prices.
• Why the move: Markets are betting the ceasefire reduces the chance of a prolonged closure of Hormuz, which normally carries about 20% of global oil shipments.

Reality check: Crude is still trading well above the pre-war levels of $72 for Brent and $67 for WTI. This oil shock is not over.

Stocks Up, Bonds Rally, Dollar Drops

Outside energy, the tone flipped to risk-on, with investors piling money back into riskier assets.

• Global stocks: Equity markets rallied, led by sectors that benefit from lower energy costs, such as travel, industrials, and banks.
• Government bonds: Bond prices rose, and yields fell as lower oil prices eased inflation fears.
• US dollar: The dollar fell to its lowest level in a month, weakening against the euro, yen, and pound as demand for safe havens eased.
• Rates outlook: Traders restarted bets on a Fed rate cut later this year. Rate hike expectations for other major central banks like the ECB and the Bank of England abated.

Why Reopening Is Not Simple

The Strait of Hormuz remains largely impassable. Iran says it could open it in a “limited” way ahead of the Friday talks. If traffic is allowed to flow freely, around a thousand vessels stuck in the Gulf could leave. 

But it is far harder to convince empty tankers to enter and load new cargo. Insurers, crews, and shipping firms all need clarity beyond a two-week ceasefire, which is not guaranteed to last. Shipping groups have said they are not changing routes yet and will continue to assess risks day by day.

What Each Side Wants Now

President Trump has floated an idea of a “joint venture” with Iran, charging ships tolls to pass the Strait of Hormuz. Iran has already started doing that on its own, with some Chinese ships reportedly paying as much as $2 million to pass safely. But Iran and the US may struggle to find common ground on Friday’s talks:

• Iran’s key demands: Lift all sanctions, acknowledge Iranian control of the Strait of Hormuz, end all attacks on Iran, release frozen assets, and recognition of uranium enrichment rights.
• The US key demands: Shut Iran’s nuclear program for good, limit the range and number of Iranian missiles, end Iranian support of regional proxies such as Hamas and Hezbollah, and fully reopen the Strait of Hormuz.