Officials state that a tentative deal between the U.S. and Iran, set to be formally signed on Friday in Switzerland, broadly matches leaked copies. This agreement will result in Iran immediately taking steps to reopen the Strait of Hormuz and allowing Iran to sell its oil without restrictions. The accord also envisions Iran receiving at least $300 billion for post-war rebuilding, with the U.S. agreeing to work towards ending all American and United Nations sanctions on Tehran if a final agreement on Iran's nuclear program is reached. The U.S. will also issue waivers to sanctions allowing Iran to sell oil freely in the interim, and will lift a blockade on Iranian ports. Several Iranian tankers have already crossed the U.S. blockade line in the Strait of Hormuz, with reports identifying Iran's first crude oil exports in two months, totaling 3.8 million barrels on two tankers, and another 1 million barrels on a third.
The global economy stands to significantly benefit from the reopening of the Strait of Hormuz, a crucial passage for a fifth of all oil and natural gas traded globally before the war. Its closure had led to a historic energy crisis and increased costs for many basic goods, including food. The deal aims to restore the pre-war status quo, ending hostilities and restarting negotiations on Iran's nuclear program, with the Strait expected to return to prewar traffic levels within 30 days, though Iranian mines may need to be cleared.
Meanwhile, investor expectations for the Federal Reserve have shifted dramatically from anticipating two or three rate cuts at the beginning of 2026 to now pricing in a 70% probability of a rate hike by December, according to the CME FedWatch Tool. This reversal is largely attributed to strong economic data, including a robust May employment report and persistent inflation confirmed by the Consumer Price Index. The May CPI showed annual inflation hitting a three-year high, with energy costs rising due to the Iran conflict, and core inflation doing significant damage. While no interest rate change is expected at the June FOMC meeting, future meetings, particularly in December, are under scrutiny as the economy remains strong and inflation sticky, challenging the Fed's dual mandate of maximum employment and price stability. Citi's Andrew Hollenhorst noted on Bloomberg Surveillance that the FOMC could signal a dovish shift if oil prices drop, but Truist's Keith Lerner emphasized the market rebound is driven by sector rotation.
