Deescalation in the Iran war happened as the US administration sensed that continuation carried too much economic cost, as a result of the energy crisis. The argument holds more than ever, especially when it come to the threat of re-escalation. This process however did not lead to a phase of structured agreement but rather a halt to the conflict, with ambiguous rules. Markets have interpreted this situation as if it already meant long-term stabilization, assuming a level of general resolution that cannot be easily achieved.

Donald Trump tried to leverage this situation as if it already contained the outline of a deal, and to accelerate the sequence accordingly. Although the Strait of Hormuz could be reopened with a limited, even implicit understanding, this aim has so far been defeated by the attempt to rush broad negotiations under extreme threats.

His framing of Iran’s concessions on enriched uranium follows this approach, moving the public narrative ahead of the negotiation itself. He tried to transform deescalation into a political outcome that could be presented as victory to his audience, rather than as an exit from an unsustainable military stalemate. Political obfuscation surrounding a military outcome tends to disrupt any long-term stabilization.

The nuclear issue does not compress easily, since it requires explicit steps. At the same time, Israel introduces a separate constraint, since its objectives and claims in the region contradict a prolonged deescalation. This too pushes the US side to rush negotiation, not because conditions are ready, but because the balance is unstable.

Narrative over Negotiation

Donald Trump has described Iran’s position on its nuclear program, particularly regarding enriched uranium, in terms that had not been agreed by Tehran. As in other negotiations, his tactics consist in attributing to the counterpart concessions that are expected rather than obtained, as if the process could be advanced by anticipating its conclusion publicly.

This approach reflects an attempt to convert deescalation into a rapid political outcome that can be presented as a success. The objective is less the construction of a detailed and sequenced agreement — which would require time and technical alignment — than the establishment of a perception of movement on Iran’s core positions. The negotiation is thus partly shaped by political signaling of victory rather than convergence.

This logic is closely linked to a form of brinkmanship, where pressure is assumed to generate linear responses. The underlying assumption is that Iran will adjust its stance whenever the United States modulates escalation or restraint. It leaves open the possibility of operations or coercive actions, particularly as a comprehensive nuclear agreement remains distant and structurally difficult to assemble. The risk is therefore not so much a return to full-scale war, but a cycle of episodic escalation within a still-contained and reversible configuration.

An Off-ramp Constrained by Its Own Logic

The underlying constraint remains a preference in Washington to avoid a renewed large-scale confrontation, given its economic and strategic costs. At the same time, the absence of tangible diplomatic results is difficult to acknowledge politically. This produces an intermediate position in which disengagement is pursued while being continuously framed as progress or even victory. This results in a configuration that neither leads to stability or restarting the war, but where fragility comes from the attempt to compress a process that remains inherently slow.

Israel’s role adds a second structural layer of instability. Its regional objectives, including territorial gains and expanded military control clash with the prospect of a prolonged deescalation phase. The divergence is structural and long-term, as US popular support of Israel quickly erodes. In practice, this has required the US administration to rely on explicit pressure to restrain Israeli moves long enough to preserve a narrow window for accelerated negotiations with Iran. The difficulty is that this sequencing is already under strain.

Hormuz and the Structure of the Stalemate

The Strait of Hormuz remains the central variable. A durable normalization would require coordination on passage rules, some form of fees or regulatory mechanism, and a broader ceasefire framework extending beyond the Strait itself, including Lebanon. None of these elements are in place as a result of the excessive focus on a global deal including the nuclear issue.

The recent sequence highlights a persistent misalignment. The United States has maintained pressure while expecting functional normalization, while Iran has treated the Strait as a lever of negotiation rather. In practice, any sustained reopening requires coordination, even in the absence of a comprehensive agreement.

External actors further complicate the picture. China, in particular, has been critical of a regime of fees that would alter flow conditions, while offering substantial material support probably more valuable than the toll booth model. This increases pressure on Iran to accept arrangements that preserve access. The equilibrium therefore depends on a balance of constraints and opportunities rather than only on a formal diplomatic settlement.

At this stage, two broad configurations remain plausible. The first is the emergence of a partial framework, limited in scope but sufficient to organize coordination around the strait and establish minimal normalization conditions. This would allow Iran some economic space while leaving the nuclear issue only partially resolved. The second is a more explicitly frozen conflict, where no agreement is reached but where a managed status quo emerges, including conditional reopening of the Strait and continued tactical coordination between actors.

For markets, many pricing assumptions remain built on simplified scenario frameworks that understate the institutional fragility of the situation, particularly around energy flows. The current situation should be understood as a reorganization rather than a resolution. Deescalation provides a temporary equilibrium, but it is increasingly exposed to attempts to convert it into a rapid political success without the institutional basis required to sustain it. Though the rationale for deescalation is more present than ever, the gap between political acceleration and structural constraint defines the fragility of the current situation.

Energy markets are unlikely to fully return to prewar standards once a deescalation process starts. The conflict has introduced lasting costs. In particular, Iran’s role in the Strait of Hormuz has become structural to global supply risk and pricing, as a new transit regime can be expected to apply. This new normal should have a lasting effect on financial markets and the real economy.

This piece is published in partnership with the French Institute for International and Strategic Affairs (IRIS).

Donald Trump’s statements about the terms of negotiations with Iran have astonished many as they did not seem grounded in real diplomatic channels. Meanwhile, his threats of massive escalation and ground offensives hardly pointed to a realistic strategy, given the enormous political and economic cost, as even the European governments most aligned with the U.S. started to distance themselves. Although confusing, this agitation finally reveals the urgency to find an exit from the quagmire. In practice, deescalation can occur even without full negotiations. It is important to understand what dynamics will be at play in energy markets in light of this trend.

Tehran has been exerting control over shipping through Hormuz during the conflict, by dramatically restricting or threatening access but also applying charges on commercial ships for transit. Sustained control over the strait would translate into direct economic influence and pricing effects on global energy markets. This can take the form of negotiated transit fees, enhanced monitoring requirements, and arrangements that reflect Tehran’s geopolitical interests.

Such explicit or implicit arrangements would sustain a structural premium on energy prices. Transit fees could act like reparations, providing revenue to rebuild infrastructure and support the regime, while structurally sustaining a premium on global energy prices. Simultaneously, some sanctions have been effectively relaxed in the sense that Iranian crude continues to flow through the Strait of Hormuz, reflecting U.S. reluctance to further tighten supply and worsen global price shocks.

Market Price Dynamics and Short‑Term Reactions

A cessation of hostilities would reduce active risk to tankers allowed passage by Tehran and reassure insurers, lowering the current premium embedded in energy prices. It would quickly see at least a partial reversal of the price spikes, which translated into an overall 60 percent surge. Global equity indices rose and energy futures already fell on various reports of deescalation prospects.

However, a deescalation process alone does not guarantee an immediate restoration of normal flows or of confidence in the security of transit routes. Reconstruction of damaged infrastructure, clarification of maritime security arrangements, and the re‑establishment of reliable insurance coverage are all prerequisites to a fully functioning transport environment. These processes take time and some degree of international coordination. Risk premia and cost structures in energy markets can therefore be expected to persist above prewar levels.

The overall disruption to oil markets is unprecedented and price behavior cannot be read solely through short‑term trading patterns, in one way or another. Oil and gas futures curves frequently reflect this complexity. For example, short‑term contracts have exhibited backwardation — where near‑term prices are higher than further delivery dates, indicating that markets expect supply constraints to ease over time even if the near‑term remains tight. However, persistent risk premiums and structural changes in supply can maintain a higher baseline.

A Lasting Economic Impact

Meanwhile, prolonged increases in energy prices feed through into inflation. Energy‑related price pressure will persist beyond short‑run market repricing. Persistent inflationary pressure complicates macroeconomic trends, reinforcing second‑round effects such as wage demands and broader price adjustments beyond energy components. In turn, higher inflation expectations and elevated energy costs feed directly into bond yields on government debt, affecting sustainability.

For energy importers, the implications extend beyond immediate price levels. Disruptions affect contract structures, investment decisions in alternative supply lines and household cost burdens. Europe, while less directly reliant on Gulf than Asia for crude oil and LNG, faces its own challenges in terms of supply and pricing dynamics. With the relegation of nuclear energy production Europe’s strategy has tended to become a process of shifting from one external dependency to another as crises erupt.

Deescalation reduces acute risk, but structural factors such as Iran’s control over the Strait of Hormuz and the time needed to rebuild confidence and infrastructure mean the market may settle at a new normal contrasting with prewar levels. The interplay between security, infrastructure, inflation dynamics and fiscal stress will shape financial and macroeconomic conditions in ways that a simple cessation of hostilities does not entirely resolve.

This piece only serves analytical purposes and does not constitute investment advice.