US-Iran agreement marks a geopolitical line in the sand

Despite many unresolved challenges, the US-Iran agreement confirms our scenario of conflict de-escalation. It also has some far-reaching regional, geopolitical, financial and oil market implications.

The interim memorandum of understanding signed by the US and Iran on 17 June states that both sides will end hostilities, reopen the Strait of Hormuz and launch a 60-day negotiation towards a final deal. As recent strains testify, the agreement leaves many important questions unanswered, most notably over the future of Iran’s stock of enriched uranium. Nevertheless, it represents a meaningful diplomatic breakthrough.

Crucially, the memorandum confirms our base macroeconomic scenario of conflict de-escalation. The US has started to end its naval blockade; Iran has said it will use its ‘best efforts’ to restore safe commercial passage through Hormuz, levying no charge for at least the next for 60 days. The US has issued sanctions waivers for the export of Iranian crude oil and associated services, including banking, insurance and transport. It is also making frozen Iranian funds usable upon implementation of the agreement, with procedures currently being discussed.

A final deal, to be negotiated within 60 days and extendable by mutual consent, will address the schedule for permanently terminating sanctions, the mechanism for a reconstruction/economic development plan of at least USD 300 billion, and the nuclear issue, including the future of Iran’s enriched uranium stockpile. The minimum methodology specified in the agreement is on-site ‘down blending’ or diluting of the material under International Atomic Energy Agency supervision – not necessarily its export or destruction, as the US initially requested.

The agreement sequencing matters

This suggests a strategic victory for Iran in the first phase of the conflict. Even after the loss of several senior figures, and despite significant physical damage to the country, the regime has survived. To date it has also done so without surrendering its highly enriched uranium stockpile, and without dismantling its ballistic-missile architecture or proxy organisations in the region, which are not addressed in the agreement.

The sequencing of the agreement is extremely favourable to Tehran

The sequencing of the agreement is also extremely favourable to Tehran, with oil waivers and some frozen-asset access beginning before nuclear negotiations. Immediate oil waivers reduce US leverage compared with the 2015 Joint Comprehensive Plan of Action negotiations, where sanction removal came only at the end. These oil sanction waivers are material: satellite and maritime data suggest that Iran may have more than 100 million barrels of oil that could be sold relatively quickly, worth as much as USD 8 bn at current prices.

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Perhaps most importantly, the conflict has seen Iran leverage a new tool of power, by taking the Strait of Hormuz and Gulf infrastructure hostage. Its post-war priorities may therefore go beyond rebuilding the old proxy architecture, to reconstituting missile, drone, mining, coastal and shipping-disruption capabilities designed to keep Hormuz and the Gulf vulnerable.

China emerges stronger

China also comes out of this crisis somewhat stronger. If Iran regains access to global oil markets, China may lose some discount advantage it previously enjoyed as the sole buyer of Iranian oil, but it has demonstrated energy resilience. It cut crude oil imports and refinery operations sharply, drawing only modestly on reserves, suggesting more short-term flexibility than many other net oil importers.

Its consumers adapted their behaviour, including switching to public transport or electric vehicles.

From a geopolitical standpoint, China also benefits from the perception that this US military action has ended in compromise rather than victory, and from a strengthened narrative that US security commitments are costly, inflationary and politically difficult to sustain.

China comes out of this crisis somewhat stronger

The implications for the US and Israel will depend on the next round of negotiations. If the final deal forces Iran to verifiably export, destroy or credibly dilute its highly enriched uranium, and accept nuclear inspections, enforcement, and non-proliferation, then the conflict could still become a costly success.

However, it would still fall far short of initial US objectives, as the Iranian regime, its proxies in the region and its ballistic missile architecture are excluded from any final deal. Moreover, if a final accord leaves Iran as a near-threshold nuclear state with oil revenue restored, the outcome would be much less favourable. For Israel, the agreement is also problematic politically because it calls for the termination of military operations on all fronts, including Lebanon. Much depends on whether Washington can impose these terms on Israel.

Altered regional dynamics

The implications of this conflict are far-reaching for the Gulf states. They have learned that they are vulnerable to attack, and that de-escalation may require giving Iran economic incentives. The politically divisive USD 300 billion reconstruction plan, described in the agreement as a US undertaking “with regional partners”, points in this direction, although details around the financing mechanics remain uncertain.

We also expect Gulf countries to invest more in defence, in safeguarding critical energy infrastructure and seeking ways to bypassing Hormuz. The United Arab Emirates has expressed a desire to have ‘zero’ dependence on the Strait in future, which will require major infrastructure investment. Gulf countries are also likely to seek more diversification of security and diplomatic relations beyond the US, including deeper ties with Europe and East Asia.

Finally, the leverage Iran has demonstrated through its closure of the Strait plants the seeds of its own erosion over time. The disruption it caused was extreme but the energy price impact was more contained than many market participants had expected. The conflict has also given the Gulf states, Asian importers and the US stronger incentives to diversify suppliers and build around Hormuz: more pipelines, more storage outside the Gulf, more strategic inventories, and more alternative sources of energy. Thus, while Iran’s Hormuz leverage is very powerful in the short and medium term, each use accelerates investment in bypasses and adaptations, gradually reducing its effectiveness over time.

The leverage Iran has demonstrated through its closure of the Strait plants the seeds of its own erosion over time

Macroeconomic forecasts unchanged

At the start of the conflict, we set out three scenarios. Our central scenario forecast Brent crude oil prices averaging USD 90/barrel from the six months since the start of the conflict. To date, prices have evolved along these lines and continue to normalise, confirming our forecasts. These include a minor reduction in growth across major economies, and an upward shift in inflation, yet with little transmission to ‘core’ inflation, which excludes energy and food.

So far, economic growth has indeed proved resilient, especially in the US, where consumers have reduced their savings rather than their consumption. We keep our view of the global economy growing by just under 3% this year, and the US by just under 2%.

So far, economic growth has proved resilient, especially in the US, where consumers have reduced their savings rather than their consumption

With limited impact on core inflation, we expected developed market central banks to move away from cuts in 2026, but, with the exception of the European Central Bank, to refrain from hiking. This is still our base case for the Federal Reserve, although we acknowledge that policy tightening is now possible under new Chair Kevin Warsh. In summary, thanks to the de-escalation scenario materialising, the economic impacts of the conflict look manageable across major economies, reinforcing our moderate pro-risk stance in portfolios.