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By Hugh Cameron
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Economists are warning that the economic fallout from the Iran war could endure, despite the temporary ceasefire agreed between the two sides.
Why It Matters
Since the conflict began, economists have warned that impacts on energy markets and sentiment could result in a serious hit to the U.S. and global economic outlook, raising inflation expectations and dulling growth forecasts, while pushing the country closer to a recession.
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What To Know
President Donald Trump on Tuesday posted on Truth Social about a two-week suspension of U.S. strikes in exchange for the “COMPLETE, IMMEDIATE, and SAFE OPENING of the Strait of Hormuz.” Iran’s conditional agreement came minutes before Trump’s deadline of 8 p.m. ET, after which he said the U.S. would launch an aggressive campaign of attacks on the country’s energy and transportation infrastructure. The president later told the AFP news agency that the ceasefire represented a “total and complete victory” for the U.S.
The announcement has been welcomed by other nations and global markets, but some experts have cast doubt on its viability and whether it will immediately undo the damage already caused.
“Even in a best-case scenario, the economic impact of the conflict is unlikely to fade quickly,” said Daniela Hathorn, senior market analyst at Capital.com.
“Damage to infrastructure, higher shipping and insurance costs, and structural shifts in energy pricing mean the shock will likely have a long tail, feeding through to inflation, growth and corporate earnings over the coming months,” she wrote in a note published Wednesday. “In that sense, while the ceasefire has improved the near-term outlook, the broader macro implications of the crisis are still unfolding."
Energy and equity markets have reacted positively to Tuesday’s news, with futures tied to U.S. indexes each rallying by over 2 percent in early morning trades, following five weeks of near-consistent declines.
Oil prices—the catalyst for most war-related economic fears—have also plummeted following the announcement, with June contracts for the international benchmark Brent crude dropping to $94 a barrel after reaching nearly $120 last week. This remains well above the pre-conflict level of roughly $70 per barrel.
“The potential reopening of the Strait of Hormuz is the most significant development from a market perspective,” Hathorn wrote on Wednesday. “The disruption had removed as much as 20 percent of global oil supply, and even a partial restoration of flows represents a major shift in supply dynamics.”
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Shipping traffic will be permitted through the Strait of Hormuz during the two-week truce, Iran has said, provided these transits are coordinated by its military and that the U.S. fulfills its own ceasefire obligations.
However, Hathorn went on to say that the situation “remains fragile,” and that the terms of the deal, which appear skewed toward Iran, raise questions about its durability.
“There is also a real risk that talks break down and the conflict reverts to its previous state, or even escalates further, once the ceasefire window expires,” she added. “As a result, markets are likely to treat this as a pause rather than a resolution.”
Economist Justin Wolfers echoed the view on X, arguing that even a “quick Iran deal” would likely fail to reverse some of the economic damage already wrought by the war. The University of Michigan professor cited stock market losses, ongoing pressure on energy prices and fresh military expenditures, writing: “The economy doesn't just snap back. Some of this is permanent.”
What People Are Saying
Iranian Foreign Minister Abbas Araghchi, in a statement shared on X, said: “If attacks against Iran are halted, our Powerful Armed Forces will cease their defensive operations.
“For a period of two weeks, safe passage through the Strait of Hormuz will be possible via coordination with Iran’s Armed Forces and with due consideration of technical limitations.”
White House press secretary Karoline Leavitt posted to X: "The success of our military created maximum leverage, allowing President Trump and the team to engage in tough negotiations that have now created an opening for a diplomatic solution and long-term peace. Additionally, President Trump got the Strait of Hormuz reopened."
Pratibha Thaker, regional director for Africa and the Middle East at the Economist Intelligence Unit, told CNBC on Wednesday: "What are we are seeing right now, I would really like to stress, is a pause in the conflict rather than any kind of lasting resolution. A huge relief. So, in the immediate sense, this has clearly reduced the tremendous tensions that have been building up in the last few days. And you have seen markets react quickly—oil prices dropped below $100 a barrel, U.S. stock futures have jumped—everything pointing in a better direction for the coming days. But, and this is a big but, it's a very fragile arrangement."
Christopher Haines, global head of oil at the energy market research firm Energy Aspects, told Newsweek: "While the ceasefire is a positive diplomatic step, and triggered a move lower in futures, nothing has yet changed in terms of physical flows from the Middle East. Iran has stated that vessels can still only transit Hormuz with its approval, in coordination with the military and subject to technical limitations."
What Happens Next
Both sides are proclaiming victory in the truce, but doubts linger over its viability and whether it will result in an end to the conflict.
Trump has described Iran’s 10-point plan—which calls for the removal of sanctions and respect for its authority over the Strait of Hormuz—a “workable basis on which to negotiate,” and said that the two-week pause in fighting will allow a broader agreement “to be finalized and consummated.”
During the two weeks, Trump added that the U.S. would “be helping with the traffic buildup in the Strait of Hormuz.”
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