US Stock Indexes Surge as US-Iran Talks Explore Phased Ceasefire; Strait of Hormuz Reopening Expectations Weigh on Oil Prices

TradingKey - US stock indices rose sharply in short-term trading while crude oil prices fell, reflecting market expectations of de-escalation. According to Reuters, US and Iranian negotiators are exploring a phased path to end the war in New York, with core terms including Iran reopening the Strait of Hormuz and the US lifting its economic blockade on Iran. New diplomatic developments in the conflict, which has lasted nearly seven months, have provided the market with expectations of de-escalation.

As of press time, the Dow Jones Industrial Average fell 0.31% to 51,350.61; the Nasdaq Composite Index fell 0.26% to 26,866.18; and the S&P 500 Index lost 0.10% to 7,698.49.

The gain in WTI crude oil narrowed from around 5% to currently about 1.6%, trading at $93.65; Brent crude oil's gain narrowed to 1.54%, trading at $104.67.

[Source: FutuBull]

The Strait of Hormuz is key to this round of negotiations. Iran seeks relief from the economic pressure caused by the US blockade, while the US demands free passage for ships through this global oil supply corridor currently blocked by Iran. The demands of both sides thus create room for a trade-off: restoring shipping in exchange for economic relief.

A senior Iranian official stated that a phased arrangement might be the most feasible way to break the deadlock, with the first step being to end the blockade and reopen the strait, while Iran might also gain access to its frozen assets. However, these discussions remain exploratory in negotiations and do not constitute a finalized agreement, nor do they mean shipping through the strait has resumed.

From the perspective of market pricing logic, if the strait reopens, concerns over oil transport disruptions are expected to ease, and the conflict risk factors supporting oil prices may weaken accordingly; expectations of de-escalation could also improve investor sentiment and support stock indices. However, these impacts depend on whether the plan can be implemented, and the market is currently still dealing with shifting expectations.

The biggest obstacle in negotiations lies in the sequencing of actions. According to several sources close to the talks, neither side is willing to surrender leverage first. How to align the reopening of the strait with the lifting of the blockade has become a critical issue to resolve in order to break the stalemate. The negotiations involve not only what concessions each side is willing to make, but also how to assure each other that these concessions will be sustained.

The US midterm elections add a timing consideration. Trump stated that he believes both sides might reach an agreement after the Congressional midterm elections on November 3. Former US negotiator Dennis Ross believes the incentive for both sides to reach an agreement before the election may be stronger than after it.

Ross's logic is that lifting the blockade would ease Iran's economic plight, while reopening the Strait of Hormuz would help de-escalate Gulf tensions, curb oil prices, and lower gasoline prices, which are highly politically sensitive in US politics. With Trump still having a strong political incentive to strike a deal, it might also be easier for Iran to secure economic relief.