World economy still hurting amid Iran ceasefire

The precarious two-week ceasefire between the US and Iran held yesterday, but the dust is far from settled. The agreement’s durability remains up in the air, and economic chaos is still afoot.

Whether the peace lasts hinges on talks in Pakistan this weekend, where the US is dispatching Vice President JD Vance to negotiate a longer-term accord with Iran. Meanwhile, Israel agreed to talk directly with Lebanon to end its military campaign against the militant group Hezbollah, which Iran insists was a condition of its ceasefire with the US.

The S&P 500 rose about 0.6% yesterday amid cautious optimism about efforts to achieve lasting peace, a muted reaction compared to Wednesday’s “relief rally.”

Not back to business as usual

Iran released a map yesterday for vessels to safely transit the mine-laden Strait of Hormuz, but there’s still no welcome sign for boats of all flags:

• Iran says it’s charging some ships $2 million to sail through the strait, subjecting the waterway to a tolling system that violates international law.
• Safety risks and concerns about whether paying the toll would violate sanctions are leaving ship owners reluctant to sail through Hormuz. Traffic in the strait was below 10% of its prewar levels yesterday.

Analysts expect oil prices to stay elevated at least through the end of the year, likely keeping gas and airfare prices higher.

Meanwhile, natural gas disruptions—which Goldman Sachs warns could last for a while, impacting electricity costs—are also driving up prices for nitrogen and phosphate fertilizer. A third of the world’s supply of the vital farming input is produced in the Gulf region from natural gas and passes through the Strait of Hormuz.

Some economic damage is irreversible…with the IMF warning yesterday that it will lower its global economic growth projection for 2026 (3.3%) to account for permanent losses, even if peace endures.—SK