Trump appeared on Fox Business and said that the war with Iran “is very close to being over.”
At the same time, however, the Strait of Hormuz remains effectively closed, oil is up 33% compared with before the war, and the negotiations still have not produced a result. On one side, there is optimism. On the other, the unanswered questions remain huge.
THE WAR HAS “ALMOST ENDED”
Trump was fairly clear in yesterday’s interview. “We defeated them militarily, completely,” he said. He added that if the U.S. were to pull back now, Iran would need 20 years to rebuild. In fact, according to him, Tehran “very much wants to make a deal.” He also added that “we’re not finished yet.”
“And where exactly do the negotiations stand, Christos?” you may be wondering. The truth is that things are a bit confusing. The Associated Press reported that there is an “agreement in principle” to extend the ceasefire by two weeks. But a senior U.S. official told CNBC that Washington “has not formally agreed” to any extension. So we have a classic “yes, but not yet.”
The ceasefire has been in place since around April 8. Last weekend, talks were held in Pakistan, but Vice President Vance left without a deal. Now, a Pakistani delegation has arrived in Iran to continue the mediation. And Trump told the New York Post that new talks in Islamabad “could happen within the next two days.”
Of course, there is one big “but.” The issue of the nuclear program remains unresolved. Trump said he is not happy with reports that the U.S. proposed a 20 year suspension of uranium enrichment. And he was categorical: Iran can never be allowed to obtain nuclear weapons. For its part, Iran says that its right to the peaceful use of nuclear energy “cannot be revoked,” but that the level of enrichment “is negotiable.” Still, no one knows where Iran’s uranium is, since IAEA inspectors have not had access since last June.
CHINA, HORMUZ, AND THE BIG BARGAIN
And this is where China enters the picture. Trump revealed that he sent a letter to Xi Jinping asking him to stop supplying weapons to Iran. Xi replied that “he is basically not doing that.” It is worth noting here that China is not sending weapons directly, but it is providing dual use technology to Iran. Trump has even threatened 50% tariffs on countries that arm Tehran.
The exchange of letters happened before the Trump-Xi summit scheduled for May 14 to 15 in Beijing. And this is where things get even more interesting. Trump wrote on Truth Social that China is “very happy” with his efforts to reopen the Strait of Hormuz. He also said Xi would give him “a big hug” when he arrives in Beijing. He even added, “we are working together smartly, isn’t that better than war?”
At the moment, Iran is keeping the Strait closed to everyone except its own ships. And since Monday, the U.S. has set up a naval blockade to cut off Iranian exports. More than a dozen ships are enforcing the blockade, according to CENTCOM.
Iran, for its part, warned that if the blockade continues, it “will not allow exports or imports in the Persian Gulf, the Gulf of Oman, or the Red Sea.” In other words, the situation is extremely tense.
HOW THE MARKETS REACTED
And this is exactly where we see something very interesting. Despite all these geopolitical tensions, the markets are optimistic. U.S. stocks are trading near record highs because investors are betting that some kind of peace deal will happen. Trump even said that when the war ends, “the stock market will skyrocket” and that “it’s already going up.”
On the oil side, Brent is sitting just above $95 a barrel. What does that mean? That it is about 33% higher than it was before the war. Yes, it has pulled back from the highs, but it is still at very elevated levels. And you know what expensive oil means. Expensive gasoline, expensive diesel, and inflation.
Trump downplayed the market turbulence and said oil prices will fall soon. But the truth is that as long as the Strait of Hormuz remains closed, the energy crisis is not going away. And China, which is the biggest buyer of Iranian oil, is already facing problems, with data showing that Chinese exports slowed significantly in March.