US-Iran peace deal sparks global market rally

The preliminary agreement tanked oil prices but questions remain about how quickly global energy markets can recover.

The U.S. and Iran have reached a framework agreement to end their three-month conflict and reopen the Strait of Hormuz, triggering a broad relief rally across global markets and sending oil prices sharply lower.

The preliminary agreement marks the biggest geopolitical breakthrough since the war began in February and immediately eased concerns over global energy supplies and inflation.

Financial markets responded quickly to the news.

Brent crude prices fell nearly 5% as traders priced in the resumption of oil shipments through the Strait of Hormuz, one of the world's most important energy chokepoints. Shares of oil giants BP and Shell also declined 3.4% and 4.3%, respectively.

European equities rallied, with the STOXX 600 reaching a record high of EUR641.66 on Monday, up 1.3% from Friday’s close. The FTSE 100 also inched higher as investors embraced a more risk-on outlook.

Precious metal miners also advanced as risk assets like silver and gold prices surged 6.9%, boosting shares of Fresnillo and Hochschild despite the broader reduction in geopolitical risk.

Throughout the conflict, higher oil prices have fueled concerns about inflation, pressured consumers, and complicated the outlook for central banks already grappling with slowing economic growth.

A sustained decline in energy prices following a peace deal could ease those pressures and improve the outlook for consumers, businesses, and policymakers alike.

Lower energy prices could also benefit airlines, transportation companies, and consumer-facing businesses, sectors that have faced margin pressure from higher fuel and operating costs during the conflict.

Investors also interpreted the decline in oil prices as reducing the risk of a renewed inflation shock, potentially easing pressure on central banks that have spent the past several years battling elevated consumer prices.

Yet the market's initial optimism may prove premature.

While U.S. President Donald Trump has warned Israel and Iran-funded Hezbollah to cease attacks, Israeli Prime Minister Benjamin Netenyahu has yet to respond publicly to the proposed deal and Defence Minister Israel Katz said the country would oppose any pressure to withdraw its forces from areas it is occupying in southern Lebanon.

Furthermore, while the agreement includes reopening the Strait of Hormuz, analysts caution that restoring regional energy production and shipping infrastructure could take months. Reuters reported that more than 14 million barrels per day of production remain offline and significant refining capacity has yet to return to operation.

For now, investors appear willing to focus on the immediate benefits of lower oil prices, reduced geopolitical risk, and a more favorable outlook for global growth.

The memorandum of understanding is scheduled to be officially signed on Friday in Switzerland, but the coming weeks will determine whether the agreement marks the beginning of a durable peace or merely the end of one phase of a broader regional conflict.

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