After President Donald Trump agreed to a two-week ceasefire with Iran on Tuesday, there was a collective sigh of relief. World leaders praised the move. Global investors began to reposition, dumping oil and loading up on equities.
And yet, barely 24 hours after that announcement, nothing has materially changed in the region. Perhaps the word “ceasefire” has lost its meaning; this one is as flimsy as any so-called “understandings” we’ve seen in the Middle East in recent years.
And based on the tone between the two, a quick resolution feels like a Hail Mary. Once again, investors appear to be buying optimism for unclear reasons, barely two days after President Donald Trump controversially claimed he would send Iran “back to the stone age” unless a deal was made.
How did we get the ceasefire?
Each escalation by the U.S. and its allies has led to an exchange of blows. Most recently, on Apr. 7, Israel launched a sizable attack on Iran’s Asaluyeh petrochemical plants in the South Pars gas field. The U.S. followed with a strategic strike on military assets on Kharg Island. Both are seen as important parts of Iran’s domestic energy industry.
Iran responded by firing off at Saudi Arabia’s Jubail Industrial City, causing extensive damage to the key plant. That attack pushed domestic oil prices over $117/barrel and prompted President Donald Trump’s 48-hour ultimatum, where he threatened “complete obliteration” of Iran’s energy and transportation infrastructure.
Painstaking mediation by Pakistan followed, wherein Iran agreed to a 10-point proposal that included the reopening of the Hormuz Strait. The U.S. agreed to a two-week break in the conflict, which quickly sent oil prices plummeting on the news.
What’s the latest with the ceasefire?
A deal was made, but it doesn’t appear to be holding.
Neither the U.S. nor Iran is meeting the terms of the ceasefire, despite plans for the nations to convene for negotiations. Part of that is because CNN reports that there doesn’t appear to be a formal written document of the agreement or its terms. It’s just an understanding among Iran, the U.S., and its allies.
However, one key U.S. ally is still dropping bombs. Today, Israel dropped hundreds of bombs in Lebanon as part of a new operation that appears to take aim at the paramilitary group Hezbollah. The attacks have killed hundreds and wounded thousands, according to reports, prompting Iran to accuse the U.S. of violating the ceasefire agreement.
Iran Foreign Minister Abbas Araghchi said earlier that the U.S. would ultimately have to choose between “ceasefire or continuing war via Israel.” In other words, if the ceasefire does not include Lebanon, Iran would have an off-ramp for the negotiations.
Iran prepares its ceasefire off-ramp
In response to today’s attacks, Iran shut the Strait of Hormuz and reportedly told mediators it would continue to limit ship transits on the critical shipping route and charge tolls. Just four oil tankers have transited the all-important shipping route today, the lowest in April thus far.
That already undoes one of the most promising elements of a ceasefire agreement between the two parties: restoring free trade. Instead, the U.S. will again be in the precarious position of trying to make the Strait free to pass again, which is likely to be a sticking point in negotiations — assuming they happen at all.
While it is increasingly clear that U.S. politicians want a resolution (or the appearance of one), the moves in the region seem to point to a breakdown in the negotiations. If those come about, it’ll mean pressing “undo” on recent optimism.
Political theatre continues
Senior U.S. officials have stressed the momentum in negotiations before the market opens each week, likely in an effort to calm the financial storms. Unfortunately, investors continue to fall for it each time, despite the fact that the situation in the Middle East remains dangerous and disruptive to the global order.
The events of the last few days are a testament to that, which is why it continues to be jarring how Wall Street’s “smart money” refuses to acknowledge its staying power. A breakdown in this flimsy ceasefire could mean that those exchanges will continue, jeopardizing global energy capacity and a slew of other industries in the process.
Despite what is outwardly said, the market continues to trivially trade the current events on “vibes” alone. Thus far, estimations that “nothing really happens” have been wrong. If a negotiation does not bear fruit, investors will be left on the wrong side of the estimate again, with the conflict threatening to continue into its third month.
And the ultimate result of that is that everybody loses as the global order continues to crumble.