A flawed Iran deal could give investors second thoughts

Opinion>Opinions - Finance The views expressed by contributors are their own and not the view of The Hill A flawed Iran deal could give investors second thoughts Comments: by Nicholas Sargen, opinion contributor - 06/22/26 10:00 AM ET Comments: Link copied by Nicholas Sargen, opinion contributor - 06/22/26 10:00 AM ET Comments: Link copied Title: Financial Markets Wall Street Image ID: 26167552988861 Article: Trader Edward Curran works on the floor of the New York Stock Exchange, Tuesday, June 16, 2026. (AP Photo/Richard Drew)

Title: Financial Markets Wall Street Image ID: 26167552988861 Article: Trader Edward Curran works on the floor of the New York Stock Exchange, Tuesday, June 16, 2026. (AP Photo/Richard Drew)

Trader Edward Curran works on the floor of the New York Stock Exchange, Tuesday, June 16, 2026. (AP Photo/Richard Drew)

News that the U.S. and Iran were about to sign a memorandum of understanding to end their conflict was greeted favorably by investors. The price of oil for West Texas Intermediate tumbled below $80 a barrel, and the U.S. stock market surged to a record high. But it remains to be seen whether investors will remain upbeat amid widespread criticism of the subsequent deal.

In announcing it, President Trump said he authorized the toll-free opening of the Strait of Hormuz, as well as the immediate removal of the U.S. naval blockade. Trump then declared: “Ships of the World, start your engines. Let the oil flow!”

The deal will extend a ceasefire for 60 days, during which the two parties will negotiate a final agreement. It creates a phased step-by-step approach that begins with the opening of the strait and postpones issues related to ending Iran’s nuclear capability. Although it creates incentives for Iran to comply, there are also many ways the deal could unravel.

The Wall Street Journal published an annotated analysis of the U.S. proposal that was presented at the G7 meeting in Paris. It reports that many conservatives who supported the war fear Trump is losing at the negotiating table by offering concessions up front.

If Iran meets U.S. requirements, it will get eventual access to billions in dollars from frozen assets and will be able to tap a $300 billion development fund that will be created. Meanwhile, sanctions on Iran are being lifted, and it has already begun to send tankers through the strait that will garner export revenues.

So why was President Trump eager to make a deal that favors Iran financially?

Trump defended the agreement in his G7 press conference, saying he wanted to avoid an “economic catastrophe” that could have resulted if the conflict continued. Trump also said he was influenced by the stock market’s rise as he worked to resolve the conflict.

My take is that investors are focused on the economic benefits of ending the current oil shortfall because of the significant impact previous oil shocks have had on the global economy and markets.

The Arab-Israeli conflict in 1973 and the Iranian revolution in 1979 resulted in prolonged oil supply disruptions when the U.S. was heavily dependent on imported oil. In both instances, inflation soared, and the Federal Reserve raised interest rates substantially, which culminated in severe recessions.

Since then, the U.S. has reduced its dependence on imported oil, and it has become a net energy exporter in recent years. This helped shield the economy from the fallout of Russia’s invasion of Ukraine in February 2022, although a surge in oil prices contributed to higher inflation, which forced the Fed to raise interest rates.

What makes the current situation precarious is the blockage of the Strait of Hormuz potentially taking close to a fifth of the world’s supply of crude oil off the market. Some energy experts have warned about a “nightmare scenario” that could send oil prices to $150 to $200 a barrel.

The Economist reports that oil markets are calm thus far because countries have found ways to circumvent an estimated 15 million barrel per day shortage. It estimates that China has slashed oil imports by roughly 5 million barrels per day from pre-war levels, and that rationing has caused overall demand elsewhere to fall by a similar amount. The remainder is being filled by destocking of rich countries’ strategic petroleum reserves.

The main concern is how long this can continue. The International Energy Agency pledged to release 400 million barrels from government stockpiles in March, but there are signs the drawdowns are slowing. The New York Times reports that reserves have dwindled rapidly in Japan and Korea, and that the U.S. government stockpiles were poised to hit their lowest levels since 1983.

Amid this, Trump likely realized he needed to end the conflict before oil shortages became acute. While he has asserted that gas prices will fall back to pre-war levels once the strait is reopened, the U.S. Energy Information Administration and many energy experts believe it will take longer. The main reasons are that countries will have to replenish oil inventories, and it will take time to restore facilities that were damaged during the conflict.

The most likely outcome is that Iran will comply with the deal for 60 days while it receives financial incentives from the U.S. However, after that period Iran has indicated it could collect insurance fees from ships passing through the strait. If so, investors need to evaluate whether there are safeguards to restore safe passage other than threats to bomb Iran.

In that event, traders would likely place bets that “Trump Always Chickens Out,” or “TACO,” once again.

Nicholas Sargen, Ph.D., is an economic consultant and is affiliated with the Darden School of Business. The second edition of his book “Global Shocks,” is available now.