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My previous commentaries have mentioned that the so-called Memorandum of Understanding between the United States and Iran carries little practical significance. The fundamental reason is straightforward: the differences between the two sides remain profound that they cannot possibly be resolved within a short period of time.
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Nevertheless, financial markets continue to price in an optimistic scenario. Regardless of whether investors admire or dislike US President Donald Trump, many assume that he will ultimately seek to end the confrontation with Iran as quickly as possible. Supporters believe he has already established overwhelming leverage over Tehran, leaving Iran with little room to resist. Critics, on the other hand, point to what has become known as the “TACO” narrative – “Trump Always Chickens Out” – arguing that mounting political pressure, including the approaching US midterm elections, will eventually force him to compromise.
However, several structural realities make a durable ceasefire between Washington and Tehran extremely difficult to achieve. Diplomatic relations between the United States and Iran were severed in 1979, and over the following decades Iran evolved into a theocratic state whose strategic interests have increasingly diverged from those of Washington. Successive rounds of US sanctions have severely constrained Iran’s economic development, while Iran’s Islamic Revolutionary Guard Corps has repeatedly been accused of orchestrating attacks abroad, including operations directed against American interests. These developments have entrenched decades of mutual hostility. This also explains why successive US administrations have generally avoided attempting to fundamentally resolve the Iran issue. Against such a backdrop, the assumption that a single large-scale US air campaign could solve nearly five decades of geopolitical conflict arguably underestimated both the complexity of the problem and the immense challenges involved.
Furthermore, the recent conflict has demonstrated to Tehran that control over the Strait of Hormuz represents one of its most valuable sources of negotiating leverage. For Washington to neutralize this leverage, it would likely require another major military operation against Iran. Such an escalation would inevitably raise the risk of damage to Iran’s oil infrastructure, while Tehran could retaliate by targeting energy facilities across the Gulf region. The consequence would almost certainly be a far more severe global energy crisis. As a result, Iran is highly likely to continue using the Strait of Hormuz as a strategic bargaining tool, while the United States cannot realistically tolerate any long-term disruption or Iranian dominance over this critical maritime chokepoint. Therefore, if hostilities were to resume less than ten days after the signing of an MoU, investors should not be surprised. Given these underlying strategic realities, such an outcome would be entirely predictable rather than unexpected.
Against this backdrop, crude oil prices are likely to remain elevated, prolonging global inflationary pressures and forcing central banks to maintain tighter monetary policies or even raise interest rates further. Consequently, the outlook for global equity markets remains far from constructive, and investors should be cautious about adopting an overly optimistic stance.
Andrew Wong is a veteran independent commentator
