US-Iran peace deal gets cautious welcome amid unresolved tensions

The United States and Iran are set to sign an interim peace deal on Friday that will reopen the Strait of Hormuz and potentially end a nearly four-month-long conflict that has killed thousands and upended the global economy.“The deal with the Iran" class="entity-link entity-organization" data-entity-id="8614" data-entity-type="organization">Islamic Republic of Iran is now complete,” US President Donald Trump said on social media on Sunday, which was also his 80th birthday. “I hereby fully authorize the toll free opening of the Strait of Hormuz” along with the “immediate removal” of the US naval blockade of Iranian ports.“Ships of the World, start your engines,” he said. “Let the oil flow!”The price of Brent crude, the global oil benchmark, fell to a three-month low on optimism that the deal will ease an oil supply crunch that has driven up costs for manufacturers and motorists and sparked global inflation concerns. Iran shut the Strait of Hormuz, which usually handles about 20 per cent of global oil supplies, in response to US and Israeli attacks that began on February 28.Uncertainty remains as neither side has released the text of the agreement, which will be signed in Geneva, Switzerland.Key sources of tensions, including Iran’s nuclear programme and sanctions relief, also aren’t directly covered in the deal, according to Iran’s Deputy Foreign Minister Kazem Gharibabadi. Instead, these will be discussed in 60 days of “technical talks”, he said.The pact calls for the “immediate and permanent termination of military operations on all fronts, including in Lebanon”, according to Shehbaz Sharif, the prime minister of Pakistan, who helped to mediate peace talks.Related news: Trump praised Chinese President Xi Jinping for not exacerbating tensions in the Middle East. “He was a total gentleman,” Trump told The New York Times. “He didn’t send a tanker, along with 20 destroyers on each side of it, to try and break up the blockade.” China’s foreign ministry welcomed the agreement on Monday. France, Germany, Italy and the UK described it as a “moment of opportunity” in a joint statement. Other nations, including Australia and Japan, also voiced support. Trump is likely to discuss plans for clearing mines from the Strait of Hormuz during this week’s G7 summit in France. Asian stocks climbed on Monday, including gains of 0.5 per cent for Hong Kong’s Hang Seng Index and 2.4 per cent for China’s CSI 300 Index. Air China jumped 10 per cent in Hong Kong, leading gains for mainland carriers. Cathay Pacific added 2.6 per cent. Iran risks remain, including potential disruptions before the deal signing, the long-term implementation of an accord, and shipping difficulties such as mines, said Xu Muyu, a senior crude oil analyst at Kpler. Trump held calls with both Russia’s President Vladimir Putin and Ukraine’s Volodymyr Zelensky on Sunday. The US leader reiterated the need to end hostilities in his near hour-long call with Putin, according to Russian presidential aide Yuri Ushakov. Zelensky said he thanked Trump for his support during a “wonderful conversation”. US envoys Steve Witkoff and Jared Kushner, Trump’s son-in-law, will visit Russia again soon, Ushakov said. How others reported it Hesitant shippers: “This has been a much longer disruption in shipping than anyone expected. And the shipping industry is gonna be hesitant at first to go fully in,” [said Rockford Weitz, professor of practice in maritime studies at The Fletcher School at Tufts University]. … “I think we’re definitely looking at months before we get to pre-war levels, and that’s with a very important caveat that assumes everything goes well, smoothly, and stably.” (Al Jazeera) Inflation break: A finalised peace deal could ease inflationary pressures “enormously”, restore consumer confidence and give global central banks more room to manoeuvre on monetary policy, Christian Noyer, honorary governor of the Bank of France, told CNBC’s Squawk Box Asia on Monday. “We were very much hoping that this sort of event would come as soon as possible.” (CNBC) Iran weapon: Since the United States launched this war, its strategic objectives have changed. It has ultimately failed to bring regime change and instead strengthened the hand of the hardliners. While the deal will reportedly reopen the Strait of Hormuz, Iran has demonstrated that its long-standing threats to close the strait are not just bluster and it can wreak havoc on the global economy. The ability to close the strait is a potent weapon that Iran will threaten to wield in the future. (Atlantic Council) Israel risk: There remains a significant possibility that Israel may attempt to create obstacles, and this risk should not be underestimated, [said] Zhu Yongbiao, a Middle East affairs expert with Lanzhou University. … “Given that Israel’s willingness to embrace a ceasefire remains limited, the principal actors in the conflict may shift substantially, leaving the regional security situation subject to continued uncertainty,” Zhu said. (Global Times) Inventory declines: “Until there is a broad understanding that it’s safe for oil and gas to flow through the Strait of Hormuz, you’re not going to see anywhere near a resumption of the pre-war flows, and that’s what really matters, because if we don’t have anything like pre-war flows, that suggests that inventories will continue to decline, and governments will continue to have to make these emergency measures,” [said Ben Cahill from the Centre for Strategic and International Studies]. (Bloomberg TV) The SCMP Plus takeawayInvestors showed wary optimism about the US-Iran peace agreement amid doubts about its durability and concerns about the damage already done to the global economy.Asian stocks rose, without showing euphoria. Hong Kong’s Hang Seng Index, China’s CSI 300, Taiwan’s Taiex and South Korea’s Kospi, for instance, all remain below recent highs even after gains on Monday. Brent crude, the global benchmark, is still up 37 per cent since the start of the year. Traders also continue to expect the US Federal Reserve to raise rates this year. The odds only fell to 69 per cent from 82 per cent on Friday, according to data compiled by Bloomberg.Caution is warranted. No agreed text has been released and plenty can happen before the signing ceremony on Friday. The agreement skips the big questions, such as the fate of Iran’s nuclear programme, and instead envisions them being solved in as little as 60 days of talks.That appears optimistic. The previous US-Iran deal, agreed under then US president Barack Obama in 2015, took two years to negotiate. It ran to more than 100 pages, including detailed appendices on Iran’s nuclear programme and sanctions relief. President Donald Trump scrapped the accord in 2018.Other hurdles exist beyond the White House and Iran. Israeli Prime Minister Benjamin Netanyahu, for instance, hasn’t always fallen in line with US policy, much to Trump’s increasing annoyance. “He’s a very difficult guy,” Trump told The New York Times.The US Senate probably needs to approve any Iranian sanctions relief under a 2015 law. Support is far from guaranteed, especially in an election year, amid long-running issues that the peace talks may not even address, such as Iran’s ballistic missile programme and its support for Hezbollah and Hamas.In the short term, reopening the Strait of Hormuz may have little impact on oil supplies and the global economy. The waterway will need to be cleared of mines before regular operations can resume. Restarting Middle East oil wells will take time and production may never return to pre-war levels in some cases. War-damaged infrastructure also needs lengthy repairs and global reserves will have to be rebuilt after record drawdowns. This will all weigh on global supply and potentially push prices up again.Still, flows may only need to recover to about 60 per cent to 70 per cent of pre-war levels to revive expectations for a global supply surplus, Vivek Dhar, head of commodities and sustainability research at Commonwealth Bank of Australia, told Bloomberg News.China has reason to hope that the Strait does reopen permanently. As the world’s largest oil importer, the country is directly exposed to supply shortages, even if huge reserves have cushioned disruptions so far. More broadly, sustained global inflation caused by high oil prices could hurt the country’s export-powered economy.Inflation concerns are far from over. Oil price increases are still working their way through global supply chains and disruptions will linger. There are also other factors to watch, such as the weather phenomenon El Nino. Rice prices surged during the last El Nino, in 2023, when top exporter India cut shipments due to bad harvests. This year’s risks are compounded by fertiliser shortages stemming from the Hormuz shutdown.China also has domestic economic challenges. Data on Tuesday could show the first decline in retail sales since December 2022, with economists polled by Bloomberg predicting a 0.2 per cent drop for May. Car sales slumped 22 per cent during the month, a sixth straight double-digit decline, after the government pared subsidies for electric vehicles and higher fuel prices hit demand for petrol-powered cars. Average consumer spending during the May Labour Day holiday was little changed versus last year and far below 2019 levels.The conflict has supported China’s booming exports of renewable energy equipment and electric vehicles. Total May car shipments surged 73 per cent. These could become permanent shifts as governments worldwide rethink energy security in the wake of the war. The country has also sought diplomatic wins by using the conflict to portray itself as a stabilising global force in contrast to the US and Trump.It will be little surprise if China soon repeats that message again in relation to Iran or somewhere else.