Oil prices plunged more than 8% on Wednesday after President Donald Trump halted a U.S. naval operation to escort commercial vessels through the Strait of Hormuz, as reports emerged that Washington and Tehran are nearing a memorandum of understanding to end the Gulf conflict. Brent crude futures dropped to approximately $100 per barrel, marking the steepest single-day decline in weeks, while global equity markets rallied on renewed hopes for a diplomatic resolution.
Diplomatic Breakthrough in the Gulf
According to Reuters, citing a Pakistani mediation source, the United States and Iran are close to finalizing a one-page memorandum aimed at ending the war in the Gulf. The development represents the strongest signal yet that diplomatic efforts are outpacing military preparations. A Pakistani official confirmed that a 14-point framework, initially reported by Axios, is under discussion, describing it as a framework rather than a finalized peace deal. “We will close this very soon. We are getting close,” the official said, noting that Pakistan has been shuttling proposals between the parties after hosting the only peace talks to date.
Market Reactions
The news sent shockwaves through financial markets. Brent crude slid over 8%, settling near the $100 mark, while stock indices worldwide climbed. Europe’s STOXX 600 surged 2.2%, and U.S. 10-year Treasury yields fell 6 basis points as investors scaled back expectations of a prolonged energy crisis. The U.S. dollar weakened, reflecting a shift away from safe-haven assets. “A timely peace deal allowing the normalization of shipping through the Strait of Hormuz would alleviate inflationary pressures and create the conditions for the Federal Reserve to cut rates in 2026,” said Ricardo Evangelista, analyst at ActivTrades, in a note to clients.
Key Terms of the Proposed Framework
The draft package, as outlined by Axios and cited by Reuters, would require Iran to halt nuclear enrichment activities, while the U.S. would lift sanctions and unfreeze Iranian assets. Both sides would also agree to reduce restrictions on shipping through the Strait of Hormuz. The framework includes a 30-day window to negotiate a broader agreement that would fully reopen the strait, cap Iran’s nuclear program, and pave the way for additional U.S. sanctions relief. However, Reuters noted it could not independently verify the details, and the White House and State Department had not commented as of Wednesday.
Iran and China Weigh In
Iran has not yet signed on to the framework. Speaking from Beijing, Iranian Foreign Minister Abbas Araqchi stated that Tehran will only agree to “a fair and comprehensive agreement.” Chinese Foreign Minister Wang Yi, also in Beijing, called for a full ceasefire, expressing that China was “deeply distressed” by the war, now in its second month.
Shipping Risks Persist
Despite the diplomatic optimism, risks in the Strait of Hormuz remain high. French shipping giant CMA CGM reported that its container ship San Antonio was attacked in the strait on Tuesday, resulting in crew injuries and vessel damage. The injured have been evacuated for treatment, according to the company. CMA CGM, the world’s third-largest container line, had previously disclosed that 14 of its ships were stuck in the Gulf when the U.S.-Israeli conflict with Iran erupted.
Shipping lanes remain a mixed picture. Maersk reported that its U.S.-flag vessel Alliance Fairfax successfully transited the Gulf via Hormuz on Monday with a U.S. military escort and no issues. However, Hapag-Lloyd told the Guardian that its risk assessment remains unchanged, and its ships are still not making Hormuz transits “for the moment.”
Uncertainty Ahead
The real concern for markets is that the pause in military operations could stretch into an open-ended gap without a final agreement. According to Reuters, citing Axios, the U.S. expects a response from Iran on critical issues within 48 hours. The draft terms allow Washington to reimpose the blockade or restart military operations if negotiations collapse. “For shipping companies and for insurance companies, they still have to wait and see how this plays out,” said Torbjorn Soltvedt, principal Middle East analyst at Verisk Maplecroft, speaking to the Guardian.
Markets have priced in a swift resolution, but the reality is that safe passage through the strait remains uncertain. The coming days will be crucial in determining whether the diplomatic momentum translates into a lasting peace or merely a temporary reprieve.
