The Iran nuclear deal has been officially agreed upon with terms set to be signed in Switzerland on June 19, as reported by multiple sources. The comprehensive agreement includes a 60-day ceasefire, a 60-day negotiation period for technical discussions around Iran's nuclear program, and the removal of the US naval blockade and reopening of the Strait of Hormuz within 30 days. The deal also encompasses a US commitment to discuss sanctions relief with Iran and the release of frozen Iranian funds, with final negotiations contingent on these conditions being met. US equity futures have soared in response, with the S&P 500 climbing 1.7% and Nasdaq jumping 3.1% on Monday, while the Dow Jones Industrial Average hit a record high, climbing 468 points (0.9%) to 52,025. Brent crude oil dropped 4.8% to $83.17 per barrel, back to early-March levels and well below the $100-plus seen weeks ago, though still above the pre-war price of roughly $70. West Texas Intermediate crude oil has fallen 5.6% to $80.13, reflecting the immediate market impact of the deal announcement. Oxford Economics reports that the agreement between the US and Iran is a significant step towards reaching a full-blown deal, though there will likely be bumps in the road. Iran's President Ghalibaf signed the MOU, which analysts note gives the agreement more political weight but also makes the next phase more delicate, as he is viewed as aligned with the hardline wing of Iran's power structure.
After three rounds of intense negotiations, the United States and Iran signed a 14-point memorandum of understanding (MoU) to expand the existing ceasefire in West Asia, while ensuring the normal flow of maritime traffic via the key trading route, Strait of Hormuz, in exchange for Iran's nuclear ambitions. At 7:40 am (IST), Brent crude oil prices were trading 0.31% lower at $79.60 per bbl on Friday's market, compared to $79.42 per bbl at the previous market close, according to Investing.com data. The final peace deal is expected to confirm the permanent termination of the war on all fronts, with both countries not allowed to interfere in each other's internal affairs. As part of the interim agreement, the US will fully remove its naval blockade within 30 days of the MoU, and will remove all of its forces from the proximity of Iran within 30 days of the final peace deal. In exchange, Iran will ensure the safe passage of commercial vessels with no change for the next 60 days, while the deal also suggests that the parties have agreed on a $300 billion budget for the reconstruction and economic development of Iran. The US Department of Treasury will issue waivers for the export of Iranian crude oil and other crude-linked derivatives, while making full use of the available frozen or restricted funds of Iran. The final peace deal is expected to be endorsed by a binding UNSC resolution, according to the US-Iran MoU.
Oil prices edged higher as investors assessed the implications of a potential U.S.-Iran peace deal and the reopening of the Strait of Hormuz. Brent crude futures gained 47 cents, or 0.6%, to $79.43 a barrel, while U.S. West Texas Intermediate rose to $76.53 a barrel, up 48 cents, or 0.6%, as of 0038 GMT on Wednesday. Both benchmarks had fallen about 5% for a second straight session on Tuesday to three-month lows on hopes a U.S.-Iran deal would allow oil flows through the Strait. Oil prices were headed for their steepest weekly decline in months as signs of a gradual reopening of the Strait of Hormuz eased concerns over global supply disruptions that had rattled energy markets since the outbreak of the US-Iran conflict. The decline comes after an interim peace agreement between Washington and Tehran paved the way for shipping activity to resume through the strategically important waterway. Tankers carrying crude that had been stranded in the Persian Gulf began moving through the strait on Thursday, while Kuwait said it would start increasing production as exports gradually normalize. The US Central Command said it had lifted restrictions on traffic to and from Iranian ports and coastal areas, with maritime authorities advising vessels to follow designated routes near the Omani coastline as efforts continue to reduce navigational risks, including concerns over sea mines. "Oil markets retreated on expectations the Strait of Hormuz would reopen following the peace agreement, but traders held off further selling pending details," said Hiroyuki Kikukawa, chief strategist of Nissan Securities Investment. WTI is likely to remain volatile within $10 above or below $80 a barrel, he added. ING analysis suggests that markets may be slightly too optimistic regarding the speed of the reopening, noting that mines will have to be discovered and removed, insurance premiums will have to be determined and vessels will actually have to be loaded and start passing through the Strait again. It should take several months before traffic in the Strait of Hormuz will be back to pre-war levels. Crude oil prices have dropped more than 8% in the last five days, more than 25% in the past month, and over 23% in the last three months, according to exchange data.
The Strait of Hormuz had been effectively closed shortly after the US and Israel launched airstrikes on Iran on February 28, with Tehran threatening to target vessels using the strategic waterway. Through this route, about 20% of global oil and liquefied natural gas supplies normally pass. However, analysts caution that oil shipments through the Strait of Hormuz are unlikely to return immediately to pre-war levels. Officials are already flagging that reopening will take time due to mines, with a meaningful increase in flows expected over the next one to two weeks and further details due within 24 to 48 hours. Andrew Lipow of Lipow Oil Associates noted that mines would first need to be cleared from the waterway, a process that could take several weeks or as long as six months. He also highlighted that a large backlog of tankers remains waiting to pass through the route, while oil production and loading operations may take weeks to return to normal. Iran confirmed the deal, but talks on issues like its nuclear program will continue for 60 days, leaving room for setbacks, and even a full reopening of the Strait of Hormuz would take months to fully restore energy supply. Oxford Economics reports that it will take time for shipping in the Strait of Hormuz to approach pre-war levels, though the agreement reduces the risk of a recession-inducing oil price spike. The Global Peace Index, issued by the London-based Institute for Economics & Peace, said a peaceful solution could save the world economy some $2.2 trillion. Restarting oil flows involves more than simply reopening shipping lanes. Producers need to bring wells back online, infrastructure must be inspected and repaired, and authorities still need to coordinate de-mining operations in parts of the strait. Some shipowners and insurers also remain wary of conditions in the region, suggesting that a complete recovery in exports could take time even as traffic gradually improves.
The New York Mercantile Exchange-based COMEX gold prices were trading 1.2% lower at $4,193.30 per ounce as of 10:17 pm (ET) in United States, compared to $4,245.90 per ounce at the previous commodity market close. Gold prices were trading lower as the precious metals were witnessing subdued demand due to a higher US dollar rate in the market. The US dollar was trading higher on the backdrop of the US Federal Reserve's decision to keep the interest rates unchanged, and investors were focusing on capital reallocation amid the dynamic and evolving geopolitical sentiment. Data collected from the Bloomberg US dollar spot index (DYX) showed that the greenback was trading 0.01% higher at 100.864 per bbl, compared to the previous currency market close levels. Traders are likely to purchase less quantity of gold in case the greenback trades higher, as they will receive fewer quantities of the asset at a higher price. The Fed will announce its latest decision on interest rates later this week, which will be the first under its new chair, Kevin Warsh. Traders had been raising bets that the Fed may have to raise interest rates this year because of how much inflation has accelerated and how solid the U.S. job market remains. The drop in oil prices is expected to provide relief from elevated costs across food, fuel, and fertilizer tied to the Iran conflict, with AI-related stocks also rallying despite recent volatility concerns about AI mania.
The market is experiencing what analysts call the perfect trifecta - oil lower, rates down, stocks up, volatility compressed, and the inflation premium suddenly shoved under the carpet. However, as the session matured, stocks kept pushing higher while bonds gave back some of the initial enthusiasm, telling us the market is not simply trading peace but trading the possibility that the oil shock is still lingering. The rates channel now becomes the real tell, with the next and more important test being whether lower oil can pull inflation expectations down, ease the Treasury curve, lean on the dollar, and extend the bid into gold. ING has developed new oil price scenarios based on updated macro and market forecasts, with their base case scenario showing that a 60-day ceasefire is signed and both sides work towards a more permanent deal, allowing for quick recovery in Strait of Hormuz flows. However, they also warn of potential scenarios where negotiations get stuck or re-escalation occurs, which could see oil prices spiking higher and forcing both the ECB and Fed into more aggressive easing cycles. The oil risk premium has been compressed, not cremated, with the physical market still having a long tail of repair work ahead as the Strait has been impaired for more than 100 days and shipping flows do not reboot like a light switch. China's crude oil throughput in May fell 9.1% on the year to the lowest level in almost four years, also signalling that refiners were starting to draw on stockpiles amid the Iran war. The return of shipping activity has prompted traders to unwind much of the risk premium that had built up in oil prices during the conflict, as crude has now surrendered nearly all the gains recorded since fighting began in February.
