Financial markets reacted exactly as expected. Oil fell. Equities rallied. Bond yields eased. Investors celebrated what appeared to be the end of the most dangerous geopolitical crisis since the invasion of Ukraine. The United States and Iran have reached an interim agreement to reopen the Strait of Hormuz, ending a war that cost thousands of lives and temporarily disrupted nearly one-fifth of global oil flows. On paper, this looks like a major diplomatic breakthrough. In reality, it may simply mark the beginning of a far more complicated phase. Because while the war may be ending, the underlying conflict remains unresolved. The agreement creates a 60-day negotiation window during which Washington and Tehran will attempt to settle the questions that triggered the conflict in the first place: Iran’s nuclear programme, sanctions relief, frozen assets, ballistic missiles and regional influence. In other words, the easy part has been achieved. The difficult part starts now.

Markets are understandably focusing on the immediate consequences. The reopening of Hormuz removes the single largest threat to global energy supply. Before the blockade, approximately 20% of global oil flows and a substantial portion of LNG exports transited through the narrow waterway. Hundreds of vessels remain stranded waiting for navigation to resume. The impact on energy markets could be significant. Combined with weak Chinese demand and slowing global growth, the reopening of Hormuz could push oil prices below 70 dollars per barrel over the coming months. Such a move would represent a dramatic reversal from the inflation panic that has dominated markets since the beginning of the conflict.

For central banks, this changes the equation considerably. Only days ago, the ECB justified its first rate increase since 2023 on the grounds that the energy shock was spreading throughout the European economy. Inflation forecasts were revised higher. Further tightening was openly discussed. Now part of that inflationary pressure may begin to disappear. The same applies to Asia. India, Indonesia, the Philippines and several other emerging economies have spent months defending currencies weakened by higher energy import bills. The reopening of Hormuz provides immediate relief to their balance of payments and reduces pressure on central banks. At first glance, everyone appears to win. That may be an illusion.

The agreement itself remains remarkably fragile. No official text has yet been released. Tehran and Washington are already presenting different interpretations of what was agreed. Iran insists that sanctions relief and access to frozen assets remain central elements of any final settlement. American officials remain deliberately vague. Congress has not approved anything. Israel appears deeply sceptical. Regional tensions remain elevated. History offers little encouragement. Temporary agreements between the United States and Iran have often proven easier to announce than to implement. The political incentives are obvious. Donald Trump needed a diplomatic success after a deeply unpopular war. Iran needed economic relief after a devastating military campaign. Both sides needed an exit. Neither side necessarily trusts the other. This explains why investors should be careful about assuming the crisis has disappeared. The most important implication may concern the dollar. Ironically, the dollar could be one of the biggest losers if the agreement holds. Throughout the conflict, investors sought safety in US assets. Higher oil prices reinforced inflation fears, pushing Treasury yields higher and supporting the currency. The reopening of Hormuz changes part of that dynamic. Lower energy prices reduce inflation expectations. Lower inflation expectations reduce pressure for further monetary tightening. At the same time, attention is likely to return to the structural weaknesses that never disappeared during the conflict: massive fiscal deficits, record Treasury issuance and growing concerns regarding long-term debt sustainability. The energy crisis temporarily distracted markets from these issues. The reopening of Hormuz brings them back into focus.

This is particularly important because the bond market remains uncomfortable with the trajectory of US public finances. Treasury issuance continues to reach extraordinary levels, while investors increasingly demand higher compensation to absorb the growing supply. A temporary peace agreement does not change that reality. If anything, it removes one of the factors supporting the dollar. The broader lesson is perhaps even more important. The Hormuz crisis revealed how fragile the global economic system has become. A single maritime chokepoint temporarily disrupted energy markets, inflation forecasts, monetary policy expectations, and capital flows worldwide. That vulnerability has not disappeared. The Strait may reopen. The geopolitical fragmentation that created the crisis remains fully intact. For investors, the temptation will be to declare victory and move on. That would be premature. The agreement offers a ceasefire. It does not offer certainty. And in geopolitics, those are rarely the same thing.