TL;DR

The United States and Iran are edging toward a temporary agreement to halt their war, multiple senior officials confirmed on Thursday. Iran is reviewing a US peace proposal and expected to deliver its response through Pakistani mediators today. Oil has broken below $100 per barrel for the first time in weeks. Global stock markets are holding near record highs. The deal is not finalized, and major sticking points remain unresolved, but diplomatic momentum is accelerating. For background on how the Iran war has been reshaping energy markets, see our Oil market coverage.

What Happened

As of Thursday, May 7, 2026, Iran's foreign ministry confirmed it is reviewing a US proposal aimed at formally ending the war, though officials said Tehran had not yet reached a conclusion. Pakistan, which has served as the primary mediator, said Iran's response was expected to be conveyed through its channels on Thursday.

The framework under discussion is a one-page memorandum of understanding, not a comprehensive peace settlement. It is structured in three sequential stages: formally ending the active conflict, resolving the Strait of Hormuz crisis, and then launching broader talks on Iran's nuclear programme.

Key sticking points remain. The US wants firm commitments on Iran's highly enriched uranium stockpiles and a defined pause on nuclear activities. Iranian officials have privately called the US document "a list of American wishes," signaling that real gaps exist. Pakistan's senior mediating official told Reuters: "Our priority is that they announce a permanent end to war and the rest of the issues could be thrashed out once they get back to direct talks."

The Strait of Hormuz, through which roughly 20 percent of global oil supply transits, has been effectively closed since March, fueling an energy price shock worldwide. Hopes that even a partial agreement could lead to a gradual reopening have already driven significant market moves.

US-Iran Peace Deal Drives Sharp Oil Selloff

Oil markets have been the clearest channel for the diplomatic signal. On Wednesday, Brent crude fell nearly 8 percent after Trump publicly signaled that a breakthrough was close. On Thursday, prices extended their decline below $100, with Brent trading near $99.7 per barrel and WTI at approximately $93.6 per barrel, according to Euronews.

For context, Brent briefly topped $119 per barrel at the height of the conflict. The move from those peaks to below $100 represents a roughly 16 percent decline driven almost entirely by improving diplomatic expectations. A US military strike on an Iranian oil tanker in the Gulf of Oman earlier this week briefly pushed prices back toward $109 before Thursday's renewed peace signals pulled them lower.

Equity markets have broadly rallied in response. The Dow Jones Industrial Average crossed 50,000 on Thursday. Japan's Nikkei 225 surged 5.7 percent to a record intraday high in Asian trading. Hong Kong's Hang Seng rose 1.3 percent, Taiwan's TAIEX added 2.1 percent, and Australia's S&P/ASX 200 gained 0.9 percent. US indices including the S&P 500 and Nasdaq are holding near record highs set earlier this week, though the Nasdaq saw mild intraday softness on Thursday as some technology sector gains unwound.

Gold edged higher even as oil fell and risk assets rallied, suggesting some market participants remain cautious about the outcome of negotiations.

Implications for Traders

Oil and Energy Futures

This is the dominant near-term story for energy markets. The central question is whether the deal materializes and whether the Strait reopens in a meaningful timeframe. A confirmed agreement that allows tanker traffic to resume would likely accelerate the oil decline further. A breakdown in talks would send Brent back toward the $105 to $115 range quickly. Oil volatility (OVX) remains elevated, and the spread between a deal and no-deal scenario is still wide enough to drive significant price swings.

Energy stocks, which have risen roughly 40 percent year-to-date, face a reversal risk if supply disruptions ease. Shell posted surging profits on Thursday due to elevated oil prices during the conflict, but a sustained drop below $95 for Brent would begin compressing upstream margins.

Equity and Index Futures

Record highs in US and Asian indices reflect a market that is largely pricing in a deal, or at least a sustained ceasefire. The risk is that diplomatic progress stalls. Markets already went through one cycle of ceasefire optimism and near-breakdown in late April. A confirmed signed agreement would likely drive another leg higher in equities, particularly in transport, airline, and consumer sectors pressured by high fuel costs. Technology stocks, the primary driver of recent gains, may see limited additional uplift from peace news relative to oil-sensitive sectors.

Crypto

Bitcoin was trading near $82,000 on Thursday, retreating somewhat from recent highs. Crypto has shown partial correlation to risk-on sentiment during the conflict period. A confirmed deal is likely mildly positive for crypto through improved risk appetite, but the primary driver for BTC near term remains macro liquidity and tech sentiment rather than the Iran negotiations directly.

Potential Positives vs Negatives

Positives if a Deal is Reached

  • Oil could fall another 10 to 20 percent, providing meaningful relief for global inflation and consumer spending.
  • Reopening of the Strait of Hormuz would normalize roughly 20 percent of global oil trade and reduce elevated shipping insurance premiums.
  • Equity markets, particularly outside the energy sector, would likely see a further leg higher as the conflict risk premium unwinds.
  • Central banks facing renewed inflation pressure from high energy costs could pause or delay further tightening signals.
  • Natural gas prices, which have risen sharply due to supply rerouting, could ease considerably.

Negatives and Risks

  • The one-page memo format explicitly leaves core disputes unresolved, meaning a return to conflict is possible if follow-on negotiations fail.
  • Iran's nuclear programme remains the central unresolved issue. A temporary halt without a verifiable long-term framework could collapse within months.
  • Energy stocks and defense-related equities that have outperformed significantly during the conflict face a sharp mean-reversion risk on any deal.
  • Markets have already moved substantially on peace expectations. A confirmed deal may deliver less upside surprise than the scale of recent gains implies.
  • A US military strike on an Iranian tanker as recently as this week shows the situation remains kinetically active. A single escalatory incident could break the negotiating dynamic quickly.

What Could Happen from Here

Base Case (50 to 60 percent probability)

Iran delivers a response through Pakistan on Thursday that accepts the broad framework of a temporary end to hostilities, while preserving its negotiating positions on nuclear specifics. Both sides initial the one-page memo within days. The Strait of Hormuz begins a gradual reopening over two to four weeks. Brent falls to the $85 to $95 range. Global equities add another 2 to 5 percent. Nuclear talks proceed but remain contentious, with no final resolution expected near term.

Confirms this path: Iran publicly acknowledges a positive response through Pakistan; Brent falls sharply toward $90 on confirmation.

Invalidates it: Iran formally rejects the proposal or adds preconditions the US calls non-starters; a fresh military incident in the Persian Gulf.

Upside Case (20 to 25 percent probability)

Iran accepts faster than expected and makes public statements about Strait reopening. Trump announces a comprehensive peace framework rather than a limited memo. Brent falls below $85. US and global equities surge, with the S&P 500 adding 3 to 7 percent. Global central banks interpret the oil decline as an inflation reprieve and adopt more accommodative signals.

Confirms this: A joint US-Iran announcement; visible tanker traffic resuming through the Strait within days.

Downside Case (20 to 25 percent probability)

Iran's response Thursday fails to provide a clear path forward. Talks stall for another week. Oil rebounds toward $105 to $110 as traders unwind peace-deal positions. Equity markets give back recent gains. The US raises military pressure, as Trump has publicly threatened to bomb Iran "at a much higher level" if no deal is reached.

Confirms this: Iran publicly rejects the proposal or imposes preconditions the US rejects; oil rebounds sharply above $102 within 24 hours.

What Traders Should Watch Next

  • Iran's formal response conveyed through Pakistan, expected Thursday May 7. Any positive signal is oil-bearish and equity-bullish.
  • Brent crude spot price: A sustained move below $97 would confirm the market is pricing a deal with high conviction. A rebound above $102 would suggest talks have hit a snag.
  • Trump statements on Truth Social and in White House remarks. He has been the primary signal amplifier throughout this negotiation cycle.
  • US 10-year Treasury yields: A deal confirmation would likely cause yields to fall modestly as inflation risk expectations ease.
  • Energy sector ETFs such as XLE and OIH, which would face selling pressure on deal confirmation.
  • Airline and transport stocks, which are direct beneficiaries of lower fuel costs and a Strait reopening.

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Sources

Header image source: wikimedia by Calistemon. License: CC BY-SA 4.0.