Markets have greeted news of a US-Iran peace deal with understandable relief.
US President Donald Trump says the Strait of Hormuz will be “completely reopened” by the end of this week. Oil prices have eased from their recent highs. Investors have quickly shifted their attention back to interest rates, economic growth and corporate earnings.
That may prove premature.
The market appears to be treating the reopening of Hormuz as a reset button, as though the geopolitical shock of recent weeks can simply be switched off. Yet the reality is more complicated.
Even if the Strait formally reopens on Friday, the consequences of the conflict are likely to remain embedded in inflation expectations, central bank thinking and asset prices for months.
Hormuz is not just another shipping lane. Roughly 20 million barrels of oil and petroleum products pass through it every day, equivalent to around one-fifth of global consumption. Around a fifth of global LNG trade also moves through the narrow waterway.
Its importance to the global economy is difficult to overstate.
During the conflict, tanker operators altered routes, insurers raised war-risk premiums and energy traders were forced to factor in the possibility of a prolonged disruption to one of the world’s most critical supply routes.
A peace agreement does not immediately reverse those changes.
Oil can start moving again within hours of a reopening. Confidence takes much longer.
Shipping companies, insurers and commodity traders do not make decisions based solely on political announcements. They respond to risk.
Many will want weeks, perhaps months, of stability before returning to normal operating levels. Some tanker operators have already warned that restoring regular traffic flows is unlikely to happen overnight.
This distinction matters because markets are currently pricing relief.
They may not be fully pricing the aftermath.
Investors face two separate risks.
The first is that normal energy flows take longer to recover than many currently expect.
The second is that the ceasefire itself may not prove durable.
The agreement announced this week extends a ceasefire for 60 days. It is not a comprehensive peace settlement. It reduces immediate tensions, but it does not eliminate the underlying geopolitical fault lines that produced the conflict.
History offers numerous examples of ceasefires in the region breaking down under pressure.
Markets appear willing to assume the best-case scenario.
Investors should be more cautious.
Energy markets certainly will be.
surged during the crisis because traders were forced to contemplate a worst-case outcome involving a prolonged disruption to Hormuz. Although prices have retreated on news of a deal, a geopolitical risk premium remains justified.
A shipping route that has recently been at the centre of military confrontation does not instantly regain its previous status simply because signatures appear on an agreement.
That matters far beyond the oil market.
Only a few months ago, investors were increasingly confident that inflation was moving decisively lower and that central banks would soon have greater freedom to cut interest rates.
The Hormuz crisis has complicated that narrative.
A sustained increase in oil prices of $10 or $15 per barrel rarely stays confined to energy markets. It feeds into transportation costs, logistics networks, manufacturing expenses and consumer prices.
Central bankers understand this.
Any prolonged period of elevated energy costs could make policymakers more cautious than investors currently anticipate.
Financial markets have spent much of this year focusing on the prospect of lower rates. Hormuz has introduced a new variable into that equation.
The implications extend beyond monetary policy.
Europe and large parts of Asia remain heavily dependent on Gulf energy exports. Higher shipping costs, elevated insurance premiums and persistent supply chain disruptions have the potential to affect industrial output, corporate profitability and consumer spending.
Sector performance could diverge accordingly.
Energy producers stand to benefit from a tighter supply environment and higher prices. Companies with heavy exposure to fuel costs, including airlines, logistics groups and some manufacturers, face a less favourable backdrop.
More broadly, the crisis serves as a reminder that geopolitical risk has returned as a major market force.
For much of the past decade, investors became accustomed to viewing energy security as largely settled. Recent events have exposed how fragile that assumption can be.
Artificial intelligence, productivity growth and corporate earnings remain important drivers of markets. Yet a conflict centred on a narrow shipping channel thousands of miles away has demonstrated how quickly geopolitics can reshape the investment landscape.
The peace deal is unquestionably positive news.
But investors should resist the temptation to conclude that the story ends with the reopening of the Strait of Hormuz.
Oil may start flowing this week.
The market consequences are likely to flow for much longer.