George Soros’s statement that “big money is to be made in going from a catastrophic situation to a simply catastrophic situation” has rarely been embodied as it is now, shortly before the announcement of a two-week truce between the United States and Iran. This truce did not end the conflict, but it at least stopped the dangerous escalation that Donald Trump threatened.
The rise seen in global markets on Wednesday was merely a sigh of relief after the worst had been ruled out, especially a potential US strike on critical infrastructure in Iran, versus Iranian threats to target water desalination plants and electricity grids in the Gulf.
The biggest positive boost was coming from North Asia, especially from Japan, South Korea and Taiwan, economies that are entirely dependent on imports of crude oil, diesel and liquefied natural gas from the Gulf. Its major indexes rose between 5 and 6 percent in one session. This rise then extended from Tokyo to Europe, all the way to Wall Street, where the Nasdaq index ended the session with gains of 2.8 percent.
On the other hand, Brent crude fell by 17 percent to reach $92, after the markets ruled out the imposition of a long-term Iranian blockade on the Strait of Hormuz, and the subsequent shock in energy supplies like the one the world has witnessed since the October War of 1973. The volatility index on Wall Street also declined from 30 to 20, with traders’ bets on all-out war scenarios decreasing.
But this relief did not last long. Two days after “Mexican Tuesday” on April 7, markets returned to assess risks more with the start of peace talks between the US delegation and the Iranian Foreign Minister in Islamabad. The Morgan Stanley Asia-Pacific Index fell between 1 and 2 percent, and Brent rose to $98, while European and American markets fell and the volatility index rose to 22.
This shift seems logical in light of the large discrepancy between the fifteen American demands and the ten Iranian conditions for peace. These hardening conditions on both sides appear to be mainly directed inward, in an attempt to enhance political legitimacy after the war.
The Lebanon front remains the greatest weakness in the ceasefire, with Israeli bombing continuing on Hezbollah targets. Iran has linked the reopening of the Strait of Hormuz to what is happening in Lebanon, a condition that Benjamin Netanyahu categorically rejects.
On the other hand, Tehran’s demands do not seem acceptable to the United States, whether with regard to uranium enrichment, maintaining the ballistic missile program, withdrawing American military assets from the Gulf states, obtaining compensation, or imposing complete sovereignty over the Strait of Hormuz. However, this does not negate the possibility of reaching a truce that reopens the most important energy corridor in the world, and ends what some Pentagon experts call the “Hormuz War.”
Historically, negotiations of this complexity may take between one and two years, as happened at Camp David, Oslo, and the nuclear agreement. Among the possible proposals is to divide management of the Strait of Hormuz between coastal states, Iran, and the Gulf Cooperation Council states, with the United States and China acting as joint guarantors, a formula that has been successful in addressing disputes in other global straits and waterways.
But the cost of war is already beginning to show. Inflation expectations in the swaps market rose from 2.25 percent on the eve of the war in mid-February to 3 percent currently, while market expectations have shifted from two rate cuts in 2026 to not expecting any cut. The direct military cost of the war on the United States amounted to $40 billion, while Iran and the Gulf states paid heavy financial, psychological, and human costs.
At the corporate level, Exxon estimated a loss of 4 percent of its global production as a result of the attacks on its liquefied natural gas facilities in the Gulf, while Delta Airlines announced that its jet fuel bill had risen by two billion dollars. Bonds of real estate development companies in Dubai also fell to levels reflecting returns between 25 and 40 percent, which indicates a significant increase in the risk of default.
In conclusion, the two-week truce achieved nothing more than a temporary freeze in the confrontation. As for the losses left by the March and April war, they will remain present in the markets, the economy and the region, even after the guns calm down. (agbi)
