Markets breathed a sigh of relief on Thursday after Iran’s state news agency reported the country is drafting a protocol with Oman to monitor and charge tolls on ships transiting the Strait of Hormuz. Deputy Foreign Minister Kazem Gharibabadi told state media the requirements “do not constitute restrictions” but are intended to “facilitate and ensure safe passage.”
Wall Street was heading for a brutal day after President Trump’s speech Wednesday night made clear that the war with Iran would last for at least another month, and that further escalation was on the horizon. But after the report, stocks recovered all their losses and turned green on the day.
Oil traders weren’t so jubilant. Both U.S. and Brent crude recovered slightly, but U.S. crude still sits close to its high of the war, having surged nearly 9% to $108.95 a barrel on Thursday, while Brent climbed more than 5% to $106.55 after Trump’s speech.
Normally, Brent trades at a $3 to $6 premium over WTI, so it is unusual for WTI to be priced higher. But the unusual spread reflects traders’ belief that the price of oil will be higher in May than in June, a phenomenon known as backwardation—an effect of Trump’s stated timeline last night. WTI contracts are trading for May delivery, while Brent is trading for June.
The big reversal for equities reflects the market’s approval of some kind of hybrid model of control over the Strait of Hormuz, where Iran and a U.S. ally share oversight. However, it is unclear how quickly the two countries would start power-sharing, given that Gharibabadi told Sputnik that Iran is currently in a state of war and that peacetime rules can’t be expected to apply under those conditions. The protocol is explicitly a peacetime framework — Iran and Oman would coordinate navigation and require vessels to obtain permits “under normal conditions.”
The question is whether either side is actually ready for peacetime. Trump, in his prime-time address Wednesday night, pledged to “hit them extremely hard over the next two to three weeks” and threatened to obliterate Iran’s power grid and oil infrastructure if no deal is struck. Iran has denied it is negotiating and has demanded international recognition of its sovereignty over the strait as one of its conditions for ending the war.
Meanwhile, key figures in Iran’s power structure are profiting handsomely from the very disruption that a protocol might resolve. Supreme Leader Mojtaba Khamenei and oil mogul Hossein Shamkhani have emerged as early beneficiaries of the oil price spike, thanks to a temporary U.S. sanctions waiver that has allowed Iran-linked vessels to move crude through the strait. As former U.S. Treasury official Miad Maleki told Bloomberg, most of the money is being pocketed by intermediaries like Khamenei and Shamkhani rather than the Iranian state itself. Iranian lawmakers have separately said the country has been charging vessels as much as $2 million for passage, and is now making twice as much on oil exports as before the war.
Iran, it seems, wants to cement that kind of economic control. And if Trump listens to markets, he might just let it happen.
This story was originally featured on Fortune.com
