US and Iran agree on framework to end war and reopen Strait of Hormuz, boosting markets

The agreement

The United States and Iran agreed on a framework deal over the weekend to end the war that began in late February and to reopen the Strait of Hormuz, a critical chokepoint for global oil shipments. The agreement is expected to be formally signed on Friday. US President Donald Trump expressed optimism, telling reporters:

“Ships of this world, start your engines! Let the oil flow!”

However, analysts described the deal as more of a declaration of intent than a robust treaty, with detailed negotiations still needed on Iran's nuclear programme and economic reparations.

Market reaction

Markets welcomed the news with relief. Brent crude oil fell by around 5% to $83 per barrel, while European gas prices dropped roughly 6%. Asian stock indices jumped, and Germany's DAX traded higher. Rising energy prices had been a major drag on the global economy, so the prospect of their easing was a strong signal for investors. Still, prices remain far above the start of 2026: oil is nearly 40% higher and gas about 45% higher.

Economic impact

German economists said the agreement improved the outlook noticeably. Clemens Fuest of the Ifo Institute said a durable deal would "significantly support the European economy" and allow the ECB to halt interest rate hikes. Commerzbank chief economist Jörg Krämer said a recession was now off the table, but the war had already caused lasting damage – estimated at 0.4 percentage points to 2026 growth in Germany and the eurozone. Timo Wollmershäuser of Ifo warned that production facilities in the Gulf region have been damaged, so a return to pre-war energy supplies will take months.

“It will take months for oil supply to normalise.”

Domestic pressures

In Germany, the conflict had driven fuel prices to record levels, forcing the government to adopt measures it had long resisted. A temporary fuel tax cut of roughly 17 cents per litre, introduced on May 1, is set to expire at the end of June. Economists said falling oil prices could ease pressure on politicians to extend such subsidies.

“Lower inflation means more purchasing power for people in Germany.”

Without further energy shocks, consumer price inflation could settle at around 2.5% for the full year, Dullien said.

Scepticism and fragility

Observers cautioned that the agreement remains fragile. Benjamin Weber of tagesschau.de noted that Iran had previously declared it would block the strait if attacked, and its reopening merely restores the pre-war status quo. The deal reportedly includes US concessions, including an end to Israel's war in Lebanon, which Israel did not accept.

“It ends a war that could have escalated massively until the end.”

The nuclear issue is postponed to later talks, and Trump's threat of renewed military strikes if those fail highlights the risk of renewed conflict.