The three things businesses and investors should know about the deal with Iran
Financial markets are naturally celebrating the news of the deal, whose details just surfaced this morning.
Our base case scenario, that we would see limited economic repercussions in 2026 and not beyond 2027, is playing out. Importantly, the memorandum that was floated makes no mention of tolls in the Strait of Hormuz, instead binding both parties to work swiftly towards returning to pre-war traffic.
Markets aren’t pricing in a non-deal. In case of an adverse event, we would expect a severe reaction from financial and oil markets, an across-the-board risk-off environment.
Summary
Financial markets have reacted positively to a tentative US-Iran Memorandum of Understanding, seen as an initial step toward easing geopolitical tensions and reopening the Strait of Hormuz. While the agreement supports a “muddle-through” scenario with limited economic damage, uncertainty remains. Key issues, such as enforcement, nuclear terms, and shipping conditions, are unresolved and subject to further 60-day negotiations. A final deal would likely boost financial assets, lower inflation expectations, and ease monetary policy, while oil prices may decline. However, risks persist: the deal could still fall through. Even if it doesn’t, disrupted shipping and uncertainty in the area could take some time to repair. A (lower probability) collapse of the deal would trigger significant market volatility and a sharp rebound in oil prices.
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Financial markets are naturally celebrating the news of a potential deal Iran and the US. Both countries confirmed signing a Memorandum of Understanding (MoU) whose details emerged this morning. While we see this development as a net positive for the global economy, assuming a final deal is signed, we also still see a bumpy road towards some normality, and possibly a change in the status quo of the Strait of Hormuz versus pre-March.
The facts: The tentative bilateral agreement between the United States and Iran, planned to be officially signed this Friday, 19th June, represents a critical juncture for global geoeconomics, geopolitics and financial markets, including oil markets. Arriving after nearly two months of halted military exchanges and nearly four months of the Hormuz Strait closure, this potential Middle East deal signals a significant, albeit preliminary, step toward peace.
Base case: A positive muddle-through. Our base case scenario, that we would see limited economic repercussions in 2026 and not beyond 2027, is playing out. The US is laser-focused on reopening the Strait of Hormuz before risks for the global economy begin rising exponentially. But we remain cautious ahead of more critical details. This is still a muddle-through, with a materially different status quo versus pre-March. Restoration of unfettered free passage from the Gulf Strait may take time. Meanwhile, until things normalise from a military perspective, shipping companies may have to pay inflated risk premiums for some time. Even in the best of cases, we would expect some sort of normalisation over the next few months, not weeks.
Market Sentiment: A final deal will be inherently positive for both equities and bond markets. Calm markets mean a smoother economy as financial volatility can often translate into economic uncertainty.
Commodities: Oil prices will experience a drop, but they will not likely crash because a necessary inventory rebuild is required and it will take time for transit to be normalised.
Inflation, growth & Monetary Policy: Assuming an agreement, inflation expectations (which are watched by central banks) are projected to go down, with actual inflation following in the next few months. Consequently, central banks are expected to become less hawkish, as the pressure to hike rates may ease. Growth projections have already been slightly downgraded for 2026, but we don’t anticipate significant fallout for 2027.
Reconstruction: The stability will allow for a start to rebuild critical infrastructure and a start to rebuild depleted stockpiles.
Potential tolls: The memorandum that was floated makes no mention of tolls. Instead, it binds both parties to restore free passage from the Strait, with Iran agreeing that “the traffic of ships shall be proportional to the pre-war volume of traffic on the part of the Islamic Republic of Iran”.
Many unknowns. A ceasefire-and-reopening framework is agreed in principle and due to be signed June 19; the toll question, the asset numbers, and the entire nuclear settlement are either contested between the parties or deferred to a 60-day negotiation that hasn't started. Information remains contradictory, and competing texts are being posted online.
For one, we aren’t looking at a final agreement, but a tentative pre-deal. The signature in a few days will be followed by another 60 days of negotiation, during which the two parties will have to agree on how to treat Iran’s nuclear material.
Second, there are major questions surrounding the exact enforcement mechanisms for both nuclear parameters and the Strait. Specifically, it remains unknown who will step up to guarantee the Strait, or whether the final signed agreement will effectively hamstring Iran’s military nuclear capabilities.
Third, even if it is signed, we don’t yet have a picture of how oil will flow back to markets, at what pace and at what costs.
Worst case: The deal collapses. We must maintain a non-zero probability that the deal collapses.
Both the US and the Iranian government have often changed course in recent negotiations. There are always sensitive diplomatic points to be debated.
A further 60-day extended negotiation means there are a large number of factors that could affect the final deal.
The deal is bilateral, not multilateral. It does not -yet- involve key Middle East countries, or, importantly, Israel, a protagonist in the conflict. Having said that, PM Netanyahu has avoided criticising the deal, and the Europeans and China have applauded it.
We want to be clear that markets aren’t pricing in a non-deal. In case of an adverse event, we would expect a severe reaction from financial and oil markets, an across-the-board risk-off environment. Bond markets will likely be hurt especially hard if interest rate expectations skyrocket further, limiting fiscal space for emerging and developed markets. We would expect oil prices to rise sharply as we would be reaching critical points in terms of global reserves.