The war is over, isn't it?

Just hours before the United States was supposedly about to annihilate Iran with lethal strikes, news broke that Pakistan’s prime minister had asked Trump to hold off for two weeks and to get Iran to reopen the Strait of Hormuz in the meantime. Following that, the S&P 500 and Dow Jones bounced, while oil pulled back as traders hoped for the “TACO.”

And eventually, it came: the sides agreed to a two-week ceasefire, with both claiming victory. As for what happens next, the U.S. is framing this pause mostly as a formality to finalize a peace deal. The problem is that the conditions both sides had set were basically unrealistic.

To start with the U.S., it had earlier demanded that Iran completely halt uranium enrichment on its territory, hand over all highly enriched uranium to the IAEA, and limit both the number and range of its ballistic missiles.

Iran’s conditions, meanwhile, reportedly included full compensation for war damages from the U.S. and its allies, formal recognition of Iran’s control over shipping in the Strait of Hormuz (including the right to charge transit fees), security guarantees from the U.S., and a stop to Israeli operations against Hezbollah in Lebanon.

Given the clearly contradictory demands, there’s still a real chance the whole thing could fall apart, with the war flaring up again alongside the reclosure of the Strait of Hormuz.

Still, the U.S. Energy Information Administration is cautiously optimistic. They expect the peak decline in OPEC production to hit in April, with output recovering by autumn. Brent crude is projected to peak around $124 per barrel in April, then oil prices gradually fall to about $86 by year-end, averaging roughly $95.60 for the year.

But let’s imagine the conflict really is over. What is next?

Obviously, that would be good news for markets, especially risk assets and gold, since a major inflationary threat would disappear. That said, the impact of more than a month of disruption in the Strait of Hormuz will not vanish overnight, and that is something to keep in mind. The reality may turn out to be less rosy, and it is also worth remembering that after Iran, Donald Trump's attention could shift to Cuba.

P.S. Donald Trump has already told Sky News that the U.S. could resume bombing Iran if negotiations go badly.