TL;DR

Iran's leadership is actively deliberating on the US Hormuz peace proposal after President Pezeshkian confirmed a nearly two-and-a-half-hour meeting with Supreme Leader Khamenei. US stocks retreated from record highs as markets wait for Tehran's formal response. Oil stabilized in the $91-$98 range after Wednesday's crash. ECB board member Schnabel added a new risk layer Thursday, signaling the central bank could hike rates as soon as June if the energy shock from the Iran war persists.

What Happened

As of Thursday afternoon ET, the United States is still waiting for Iran's formal reply to its proposal to end the war and reopen the Strait of Hormuz. The US offer centers on a 30-day negotiation window toward a broader ceasefire.

Iran's President Masoud Pezeshkian confirmed Thursday that he recently met with Supreme Leader Mojtaba Khamenei for nearly two and a half hours, according to the state-run Mizan news agency. This is the first public account of the two leaders meeting since Khamenei's appointment in early March. The confirmed meeting signals that Tehran's deliberations on the deal have reached its highest leadership level.

Meanwhile, ECB Executive Board member Isabel Schnabel said Thursday that the European Central Bank would need to raise interest rates if the Iran war's impact on inflation proves more durable than expected. Her comments, confirmed by both Reuters and Bloomberg, indicate that several ECB board members are now actively backing a rate hike as soon as June -- a meaningful monetary policy shift on top of an already volatile geopolitical backdrop.

Why Markets Moved: Iran Deal Uncertainty Returns

Wednesday's explosive rally -- which saw oil crash more than 8% and US stock indices briefly touch all-time highs on initial deal reports -- gave way to a more cautious Thursday session.

US stocks retreated from their record closing levels as investors absorbed the reality that no deal has yet been formally agreed. Bloomberg reported that the pullback came as the market waited on Iran's reply and parsed ongoing earnings results.

Oil partially retraced Wednesday's decline. Brent crude, which fell below $101 on May 6, was trading in the $95-$98 range intraday Thursday, while WTI held near $91. The Strait of Hormuz -- a 34-mile-wide waterway between Iran, Oman, and the UAE through which roughly 20% of the world's daily oil supply passes -- remains the central price driver. Bloomberg noted Thursday that oil market liquidity has evaporated since the start of the US-Iran conflict, amplifying moves in both directions.

Schnabel's ECB comments sharpened the picture further. Traders are now weighing two linked scenarios: a deal that reopens energy flows and removes the war premium from oil, or a prolonged standoff that sustains elevated energy prices and forces central bank tightening in Europe.

Implications for Traders

Energy and commodities: Oil remains in a range-bound, high-volatility state. The war premium that was embedded in Brent before Wednesday's crash has not fully returned, but thin liquidity means any headline can produce outsized moves. A deal confirmation would likely push oil back below $90; a breakdown could send Brent back toward $110+.

Equity and index futures: The pullback from record highs is a natural pause given ongoing uncertainty -- not necessarily a trend reversal. The AI-driven earnings momentum that powered indices to records remains intact. However, geopolitical risk is capping near-term upside until Iran's response is known.

Macro and rates: ECB rate hike bets are building. A June ECB hike, if confirmed, would tighten euro-area financial conditions at a time when the economic growth outlook is already mixed. The Federal Reserve, which held rates at its April FOMC meeting, is seeing its own internal dissent: Boston Fed President Susan Collins said Thursday she agreed with the members who dissented over language in the post-meeting statement regarding the future path of rate cuts.

The combined picture -- Fed on hold with internal disagreement, ECB potentially hiking -- sets up a rate divergence dynamic that could move currency markets and cross-border capital flows independent of the Iran outcome.

Potential Positives vs Negatives

Positives:

  • The confirmed Pezeshkian-Khamenei meeting signals the deal is being taken seriously at the top. A positive response could sharply lower oil prices and ease energy-driven inflation globally.
  • US equity market fundamentals -- AI earnings momentum, resilient labor data -- remain supportive even as the macro picture is uncertain.
  • An ECB hike could signal that European inflation is manageable and that central banks are willing to act, which could stabilize long-end rate expectations.

Negatives:

  • Every additional day without a formal response sustains oil volatility and corporate planning uncertainty.
  • An ECB rate hike in June would tighten financial conditions in an already fragile European growth environment.
  • If negotiations break down publicly, oil could spike sharply as the war premium re-enters the market.
  • Oil market liquidity is near multi-year lows, meaning even moderate news flow can cause outsized price swings.

What Could Happen From Here

Base case (50%): Iran's leadership responds positively to the US proposal within 24-72 hours, entering the 30-day negotiation window. Oil falls toward $85-$90 on the announcement. US equities hold or edge higher. ECB delays a final June hike decision pending clarity on inflation data.

Confirmed by: Official Iranian state media announcing acceptance of terms; Brent crude falling below $90. Invalidated by: Iranian state media formally rejecting key deal terms; Brent moving back above $100.

Upside case (25%): A comprehensive ceasefire is announced within days. Hormuz reopens. Oil drops sharply, stocks surge on the relief rally, and ECB reconsiders June timing as imported inflation pressure abates quickly.

Confirmed by: Joint US-Iran ceasefire statement; rapid resumption of tanker traffic through the strait. Invalidated by: Continued back-and-forth without a formal agreement.

Downside case (25%): Iran rejects or indefinitely stalls the US proposal. Oil spikes back toward $110+ as the war premium re-enters fully. ECB proceeds with June hike. European and US equities sell off on combined geopolitical and inflation risk.

Confirmed by: Iranian state media rejecting terms; Brent breaking back above $100 in a single session. Invalidated by: Renewed diplomatic engagement or a ceasefire extension announcement.

What to Watch Next (24 Hours)

  • Any formal statement from Iran's Foreign Ministry or state media on the deal proposal
  • Brent crude price action around the $95 level -- a sustained break above $100 or below $90 would be the clearest directional signal
  • Additional ECB commentary -- whether June hike pricing builds further in interest rate markets
  • US equity futures Thursday evening and Friday pre-market -- watch whether today's record-high pullback stabilizes or extends
  • Trump posts and statements on Iran, which have been among the fastest-moving catalysts in this cycle
  • Oil tanker traffic data near the Strait and any US Navy or CENTCOM statements on the status of shipping lanes

Frequently Asked Questions

Why does the Strait of Hormuz matter so much to oil prices?
The Strait of Hormuz is a narrow waterway, roughly 34 miles wide at its narrowest, between Iran and Oman. About 20% of the world's daily oil supply flows through it, including crude exports from Saudi Arabia, the UAE, Iraq, and Kuwait. Any sustained disruption forces buyers to seek alternative routes or sources, pushing global oil prices sharply higher. Reopening the strait is the core condition of the current US-Iran deal proposal.

What would a June ECB rate hike mean for traders?
A June rate hike by the ECB would be the central bank's first tightening move in years. It would raise borrowing costs in the euro area, tighten financial conditions for European households and businesses, and likely strengthen the euro against the dollar. For equity traders, it could compress European stock multiples. For rates traders, it would confirm a divergence from the Fed -- which is on hold -- creating spread trades between European and US government bonds.

Sources

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Related: Oil Crashes 9% on US-Iran Deal Reports as S&P 500 and Nasdaq Hit All-Time Highs

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