Ceasefire sparks global relief rally as Hormuz stays blocked

The two-week US-Iran truce drove the strongest single-day risk-on print since early 2023. Western equities surged, volatility collapsed, and the dollar slipped to a four-week low — but oil rebounded sharply on day two as Hormuz throughput stayed restricted.

The two-week ceasefire between the United States and Iran, brokered with Pakistan’s mediation, was meant to open the Strait of Hormuz and de-escalate a 40-day conflict that has reshaped energy markets and geopolitical alliances. Tehran published a 10-point plan that Washington called a “workable basis” for negotiations; JD Vance is set to lead the US delegation in Islamabad talks this Saturday.

Yet the truce is already fraying. Israel launched its heaviest strikes of the war on Lebanon within hours of the deal: 50 fighter jets dropping 160 bombs on 100 targets within 10 minutes, mostly on residential buildings, in an operation internally codenamed “Eternal Darkness.” Iran responded by temporarily halting tanker passage through Hormuz once more. Fewer ships passed through the strait on day two of the ceasefire than during the fiercest days of fighting; Tehran is now dictating terms, including reports of demanding cryptocurrency fees for passage. Saudi Arabia’s east-west oil pipeline and energy infrastructure across Kuwait and the UAE have also been hit, underscoring the fragility of any de-escalation.

Western equities staged their strongest single-day advance since early 2023 on the ceasefire announcement. The DAX surged 5.06% as European bonds rallied and traders trimmed bets on further rate rises; the S&P 500 gained 2.51% while the VIX collapsed 18% to 21.04. The dollar hit a four-week low as risk appetite returned, and Treasury yields declined across the curve with the 10-year falling to 4.291%.

The optimism has limits. Oil rebounded sharply on day two — Brent climbed back above $97 and WTI rose 3.46% — as it became clear that the Strait of Hormuz remains effectively closed. Gold pulled back modestly from record highs near $4,733, but the retreat was shallow; investors are hedging against the ceasefire’s collapse. Asian markets were notably more sceptical, with the Nikkei, Hang Seng and several emerging-market indices finishing lower as the region’s proximity to the conflict keeps risk premia elevated.

The UAE is seeking clarification on the terms of the ceasefire, reflecting the Gulf’s uneasy position between relief and continued vulnerability. Energy infrastructure across the region remains exposed; attacks on facilities in Iran, Kuwait, the UAE and Saudi Arabia’s key east-west pipeline have continued despite the truce. Dubai’s tourism chief has expressed confidence in recovery, but airline operations are scaling back and the Qatar Economic Forum has been postponed to later in 2026.

On a more constructive note, the UAE and Bahrain central banks signed a $5.4 billion currency swap agreement, reinforcing regional financial stability. The UAE has also convened global shipping leaders to address trade disruptions, positioning itself as a mediator in the logistics crisis. Consumer confidence in Dubai is showing resilience in unexpected places, and the emirate continues pressing ahead with its 2026 development plans including 35 new parks.

This conflict has exposed a vulnerability that goes beyond the immediate energy shock. The dollar has weakened rather than strengthened during a geopolitical crisis — an inversion of the traditional safe-haven dynamic. Iran’s demand for cryptocurrency payments for Hormuz passage, while symbolic, reflects a broader pattern: nations under pressure are actively seeking alternatives to the dollar-denominated system that has underwritten global trade for decades.

For investors, the structural question is whether the war’s legacy will be a permanent repricing of the energy transition. Europe’s fossil fuel dependence has been laid bare; the EU now acknowledges that repeated cost shocks make the shift to cleaner energy not just a climate imperative but a price stability one. The countries that move fastest to diversify their energy mix and payment infrastructure may emerge with the greatest strategic advantage in the decade ahead.

As OPEC members have long understood, it is not a good idea to give users of your product an incentive to find alternatives.