Markets brace for Iran’s response as traders weigh war risks, Fed pressure, and the future of global energy flows.
MARKET INSIDER – Oil prices swung back into positive territory Thursday as investors anxiously awaited Iran’s response to a U.S.-backed proposal that could end the conflict in the Gulf and reopen one of the world’s most strategically vital shipping routes: the Strait of Hormuz. The sudden reversal underscores how deeply geopolitical tensions are now shaping inflation expectations, central bank policy, and the outlook for the global economy.
After initially tumbling nearly 5% on hopes of a diplomatic breakthrough, crude prices rebounded as traders reassessed the fragility of negotiations between Washington and Tehran. Brent crude rose to $101.94 per barrel, while U.S. West Texas Intermediate climbed to $95.92, reflecting a market still pricing in significant disruption risks across global energy supply chains.
Iran’s Foreign Ministry spokesperson, Esmaeil Baqaei, said Tehran is reviewing the latest U.S. proposal and would respond through mediators in Pakistan. In a statement that signaled cautious resistance, Baqaei insisted negotiations must involve a “genuine attempt” to resolve disputes rather than “dictation, deception, extortion or coercion.”
The diplomatic push comes after U.S. President Donald Trump suggested the American military campaign, dubbed “Operation Epic Fury,” could end if Iran accepts terms already discussed between the two sides. Trump also hinted that the U.S. naval blockade affecting Iranian ports could be lifted, reopening the Strait of Hormuz “to all, including Iran.” Yet his simultaneous warning that Iran would face bombing “at a much higher level” if talks collapse highlighted how precarious the situation remains.
According to Axios, U.S. and Iranian officials are nearing a 14-point memorandum of understanding that could establish a framework for ending the war. The reported agreement would include easing restrictions in the Strait of Hormuz, a moratorium on Iranian nuclear enrichment, the lifting of certain U.S. sanctions, and the release of frozen Iranian funds. For global markets, the stakes extend far beyond the Middle East. Roughly one-fifth of the world’s oil supply moves through Hormuz, making any disruption a direct threat to energy prices, shipping costs, and inflation worldwide.
Wall Street strategists are increasingly warning that a prolonged conflict could derail expectations for lower interest rates later this year. Scott Chronert, U.S. equity strategist at Citigroup, said the duration of the crisis could materially reshape economic growth forecasts and influence how aggressively the Federal Reserve responds to inflation pressures fueled by higher oil prices.
The broader market question is no longer simply whether a deal will be signed. Investors are now debating whether the world has entered a new era where geopolitics — not earnings, not AI, not even interest rates — becomes the dominant force driving global asset prices.
