After nearly four months of conflict, the United States and Iran have reached an agreement to end hostilities and allow the Strait of Hormuz to reopen. This is a positive development for the global economy. However, it is only an interim agreement that opens a 60‑day negotiation period on the most complex issues, which calls for caution.

Key questions – including Iran’s nuclear program, Iranian assets frozen abroad, and the Israel‑Lebanon front – may prove difficult to resolve within two months. Even the main breakthrough remains contested. The United States describes the outcome as a long‑term, toll‑free strait. Iran, by contrast, presents it as a waterway jointly managed with Oman, where “service fees” are only suspended during the negotiation period.

Our geopolitical advisory department, the Lazard Geopolitical Advisory Group, identifies three possible scenarios for the coming weeks. The second appears the most likely.

• Sustained de-escalation: In this scenario, the 60‑day negotiation period would lead to a substantial agreement. Maritime traffic could gradually return to normal, and the situation in Lebanon would stabilize. This would represent the fastest path toward normalizing physical flows and energy prices. However, it would also be the most politically difficult scenario, particularly because of the nuclear issue and Israel’s position.
  
  
• Unstable ceasefire: In this scenario, the agreement would hold, but the 60‑day negotiation period might produce no decisive progress. The most difficult issues could remain unresolved, leading to intermittent incidents. The Strait of Hormuz would formally reopen, yet traffic could remain below pre‑war levels. Energy prices would therefore likely stay higher than in the first scenario.
  
  
• Resumption of hostilities: In this scenario, the agreement could collapse following a breach of the memorandum of understanding, an escalation in Lebanon, or a breakdown in negotiations. The strait would then remain disrupted for an extended period. Energy prices would likely stay elevated, with the possibility of renewed U.S. and Iranian strikes.
   

Beyond geopolitical uncertainties, the markets quickly priced in this agreement, notably with a sharp correction in crude oil prices, as Brent fell back below the $80-per-barrel threshold. However, the normalization of physical flows is a separate and much slower process, which will likely take months rather than days or weeks. The Strait of Hormuz still needs to be cleared of mines. War‑risk insurance must be reinstated. Waiting ships must pass through the strait, and production needs to restart. As a result, physical markets could remain under pressure even if the framework of the agreement holds.

Rising oil prices continue to affect U.S. inflation. Consumer prices rose 4.2% year-over-year in May, compared with 2.4% before the start of the war in Iran – a level not seen since April 2023. The increase in prices excluding energy and food (2.9%) is more moderate, but still well above the Fed’s target.

So far, this shock has not led to a slowdown in economic activity. Household consumption has remained solid, supported by a sharp decline in the savings rate, while growth continues to benefit from the strong momentum generated by investment in artificial intelligence. However, outside sectors directly linked to AI, business investment is weakening, and residential investment is also declining.

Business surveys continue to send positive signals, and the labor market is showing signs of renewed momentum. After more than a year of weak or negative figures, job creation has rebounded over the past three months to an average of nearly 200,000 per month. Healthcare remains the main contributor to employment growth, but a growing number of sectors are now contributing to job creation.

At his first press conference, Kevin Warsh, the new Fed chair, chose not to reveal his position on future changes to the benchmark interest rate. He emphasized his commitment to bringing inflation back to target and his desire to rethink the Fed’s standard practices. The other 18 members of the monetary policy committee appeared divided on the issue: nine foresee at least one rate hike, eight expect the status quo, and one member anticipates a rate cut. Overall, this distribution points to a shift within the Fed toward a more hawkish stance.

As in the United States, recent eurozone data highlight the inflationary effects of the energy shock. Consumer prices rose by 3.2% year‑over‑year in May, compared with 1.9% before the conflict began. Core inflation increased to 2.6%, although part of the recent acceleration appears to reflect calendar effects that temporarily pushed up travel and airfare prices. At the same time, labor cost data remain disinflationary, suggesting that underlying wage pressures continue to moderate.

On the activity side, the revised estimate of first‑quarter growth now points to a contraction, whereas earlier figures had indicated a slight expansion. Nevertheless, excluding Ireland, eurozone GDP continues to show gradual improvement. More broadly, most economic indicators have so far remained relatively resilient.

By contrast, surveys point to a sharp decline in business and consumer confidence. Even after the upward revision to May’s PMIs, the levels remain consistent with stagnating GDP. The key question will be whether this confidence shock spills over into the labor market, which had already begun to show signs of slowing before the energy shock. For now, the unemployment rate remains close to historic lows.

Despite softer economic momentum, the ECB raised its deposit rate from 2.00% to 2.25%, in line with expectations. The decision reflects higher inflation projections, with core inflation expected to reach 2.5% in both 2026 and 2027, as well as expectations of resilient growth – 0.8% this year and 1.2% next year. In our view, however, these growth forecasts appear somewhat optimistic given the recent signals from economic surveys.