What Has Happened Since the Agreement
Five weeks ago, the U.S. and Iran signed a memorandum of understanding aimed at ending the war. The 14-point agreement reopened the Strait of Hormuz, eased certain financial restrictions on Iran, and set a 60-day window to negotiate the harder issues, including Iran’s nuclear program. For about two weeks, it worked. Hundreds of tankers exited the Gulf, oil fell to $72 a barrel by late June, nearly back to its pre-war level, and gasoline prices started to ease.
Then it came apart. Iran claims the right to control traffic through the Strait and has insisted ships use its approved routes. In early July, Iranian forces attacked several commercial vessels that did not comply, including a Qatari natural gas tanker. The U.S. responded with strikes on Iranian military targets, revoked Iran’s permission to sell oil, and reinstated the naval blockade. The two sides have now traded attacks for eleven consecutive nights, and four American service members have been killed. Yemen’s Houthi militants have opened a second front, striking tankers in the Red Sea, the route Saudi Arabia has used to move oil around the closed Strait. Brent oil surged above $100, its highest level in almost six weeks, as U.S. officials played down the chances of near-term talks. Diplomacy has not stopped entirely. Iran’s interior minister was in Pakistan for meetings aimed at reviving the ceasefire, and both governments continue to say a negotiated end is the goal.
Both Sides Still Need This Deal
It is easy to look at the last two weeks and conclude the peace effort has failed. We think that reading misses the underlying incentives, which have not changed. Iran’s economy cannot function without oil exports. Inflation there is running above 40%, the currency is under severe stress, and the country needs sanctions relief and reconstruction money. Every week of renewed fighting costs Iran billions in lost revenue and pushes those goals further away.
The U.S. has its own reasons to finish the job. Gasoline remains near $4 a gallon and is feeding directly into inflation. The war has cost $37.5 billion so far by the Defense Department’s own accounting, Congress just approved another $95 billion package, and the campaign is now costing American lives. A durable deal that reopens the Strait and brings oil prices down delivers a visible win for American consumers. Both sides got a preview of the payoff in late June, when two weeks of calm brought oil nearly back to pre-war prices. The benefits of peace are not theoretical. They showed up almost immediately, for both countries, the moment the shooting stopped.
Why Iran May Be Holding Out
If the deal is so clearly in Iran’s interest, why risk it over shipping routes? A few likely reasons. First, control of the Strait is the only real leverage Iran has left. Its military has been badly degraded, so its ability to disrupt the world’s oil supply is the one card that still forces other countries to take its demands seriously. Giving that up early, before sanctions relief is locked in, would leave Iran with nothing to trade in the harder negotiations still ahead over its nuclear program.
Second, the agreement is performance-based, and each side is waiting for the other to move first. Iran wants sanctions relief delivered before it fully gives up control of the waterway. The U.S. wants full compliance before it delivers relief. Third, Iran’s new leadership faces its own politics. After losing a war and its Supreme Leader, the government cannot afford to be seen surrendering. Picking a fight over routing rules lets Iran show strength at home while keeping the broader framework alive. None of this makes the behavior less dangerous, but it does suggest the goal is better terms, not a return to full-scale war.
A Second Front in the Red Sea
The most important development of the past week may be happening away from the Strait of Hormuz. Yemen’s Houthi militants, who are backed by Iran, declared a maritime embargo against Saudi Arabia on Monday and struck oil tankers in the Red Sea this week, including one off the Saudi coast. They have also threatened to close the Bab el-Mandeb Strait, the chokepoint connecting the Red Sea to global markets. At least one Saudi crude tanker has already reversed course.
This matters because the Red Sea has been the escape valve for Gulf oil. With Hormuz closed, Saudi Arabia has been moving millions of barrels a day through its East-West pipeline to terminals on the Red Sea coast. That rerouted supply is a big part of why the world has managed through this crisis without deeper shortages. If the Houthis can credibly threaten that route, both of the region’s main exits are compromised at once, and the supply cushion the market has been leaning on gets thinner. The U.S. has vowed to respond to any Houthi disruption, and this is the escalation path most likely to push oil prices sharply higher from here. It also adds one more reason both sides have to get back to the table before the conflict widens further.
What This Means for Markets
The late June window was instructive. When the Strait opened and ships moved freely, oil fell $17 in four trading sessions and came within a few dollars of its pre-war price. The wave of supply we have written about in prior updates is still out there: full storage tanks across the Gulf, loaded tankers, and shut-in production waiting to restart. The current price near $100 includes a war premium of roughly $25 that exists only because the shooting resumed, and the Red Sea attacks add a new layer of risk by threatening the main route around the closed Strait. If a durable settlement takes hold, that premium comes out quickly, and the supply overhang could carry prices well below pre-war levels over time.
The honest answer on price is that the range of outcomes is unusually wide. If the war truly ends and the trapped supply reaches the market, oil could fall to $40 to $60 a barrel. If the Houthis shut down the Bab el-Mandeb Strait and both of the region’s exit routes close at once, oil could spike above $150. Few markets offer that kind of spread, and it is why we would not position portfolios around any single oil price forecast.
For inflation, the stakes are the same as we outlined in May and June. Every $10 drop in oil takes roughly 25 cents off a gallon of gasoline and a few tenths of a point off headline inflation. A durable peace remains the single biggest disinflation catalyst available to the U.S. economy this year. The risk case is also clear: a full breakdown would send oil back toward war-era highs and keep inflation pressure in place longer.
The Bottom Line
The road from ceasefire to lasting peace was never going to be straight, and the last two weeks prove it. But the economic logic that produced the June agreement is still intact. Iran needs its oil revenue back. The U.S. wants lower prices at the pump and an end to a war that is costing billions and American lives. Both sides saw the benefits arrive within days when the fighting paused, and mediation is continuing in Pakistan even as the strikes go on. Setbacks like this one are painful, but they are part of how difficult negotiations end, not necessarily a sign of where they are headed.
Markets will stay volatile while this plays out, and headlines will swing in both directions. That does not change how we manage portfolios. Diversification across regions, sectors, and asset classes is built for exactly this kind of uncertainty. Clients who stayed with their plan through five months of war and a choppy ceasefire have been rewarded for it, and the same discipline applies now. As always, if your situation or goals have changed, please reach out. Otherwise, the best action remains the one we have recommended all along: stay invested, stay diversified, and let the plan do its work.
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.