Geopolitical Risk Brief

Our country risk experts provide insight into key geopolitical events that could impact the economic environment in June.

A new US-Iran memorandum of understanding (MOU) is expected to reduce shipping risks in the Strait of Hormuz from Extreme to Severe levels. However, the outlook remains uncertain, with risks of sporadic violations and contested maritime incidents. Potential disagreements over vessel transit fees could disrupt the 60-day negotiation period and cause risks to return to Extreme levels.

The US-Iran MOU aims to end military operations and ensure passage through the Strait of Hormuz, a critical chokepoint for global trade. This development directly impacts global shipping security, oil flows, commodity prices, and financial market stability. The successful implementation of the agreement is a key focus for an array of sectors, from energy and logistics to finance and insurance.

MOU Impact on Strait of Hormuz Shipping Risks

A memorandum of understanding (MOU) for a cessation of hostilities between the US and Iran was officially agreed upon by both parties on June 14. Negotiations toward a long-term deal began in Switzerland on June 21 with technical discussions to continue the rest of the week, after both the US and Iran officially signed the MOU for a cessation of hostilities on June 17, with immediate effect. 

The MoU represents an interim agreement that entails ending military operations from all parties in the conflict including between Israel and Hezbollah in Lebanon (though neither Israel and Hezbollah are officially signatories to the MoU), and enabling unimpeded passage through the Strait of Hormuz through a 60-day negotiation period, during which the Iranian government commits to “make arrangements using its best efforts for the safe passage of commercial vessels with no charge." Through the 60-day period, the US will also issue waivers on Iranian hydrocarbons exports and all associated services including financial transactions.

S&P Global Market Intelligence assesses it as likely that the ceasefire will broadly continue over the coming two-to-three months at least, with infrequent low-level violations, contested maritime incidents and/or proxy-linked attacks including against targets in Gulf Cooperation Council (GCC) states, without escalating into another sustained high-intensity war. Nevertheless, the risk of renewed war remains severe in the one-year outlook if no long-term agreement is reached. 

Implementation of the MoU over the coming 60-day period would reduce shipping risks to Severe, from the Extreme levels that Market Intelligence has set since the start of the war, particularly for tankers and merchant vessels transiting under recognized commercial routes and with advance notification. 

If the MoU is not fully implemented, risks to shipping in the Gulf and particularly around Hormuz would remain at extreme levels. Iran would likely resume efforts to seize, inspect, or attack vessels it claims are transiting without Iranian authorization or in violation of its security directives. 

Impact on Middle East Oil Flows

The impact on oil flows of the recent deal to end the war in the Middle East. The US and Iran officially signed a memorandum of understanding (MoU) for a cessation of hostilities on June 17, with immediate effect, enabling unimpeded passage through the Strait of Hormuz through a 60-day negotiation period. How quickly oil flows will return to pre-conflict norms is uncertain. The base case from S&P Global Energy, assuming reopening of the strait in the second half of the year, was for this to happen only by the first quarter of 2027.

Role of US and China in Oil Price Pressure

April’s trade figures showed a surge in US exports of crude oil, while mainland China’s imports continued to fall sharply. In combination, this has contributed to crude prices falling short of the projected near-term peaks in our recent forecast rounds. Still, a return to pre-conflict levels of production in the Gulf will take time, and given the depletion of US oil inventories, the base case does not expect crude prices to return to preconflict levels any time soon.

Commodity Price Pass-Through to Inflation

While oil prices have been the main focus, supply disruptions are also affecting a range of other materials prices. This includes shortages of sulfur and fertilizer that are pushing up copper and agricultural prices, with El Niño an additional concern for the latter. Producer price inflation rates are soaring and S&P Global’s Purchasing Managers’ Index™ (PMI®) data points to further increases, with the impact on consumer price inflation rates for core goods expected to become more apparent from the second half of the year.

US Monetary Policy Outlook

Prior to the recent US-Iran agreement regarding the Strait of Hormuz, futures markets had moved to almost fully price in a 25-basis-point policy rate increase in early 2027. Headline and core personal consumption expenditures (PCE) inflation have both been above the Federal Reserve’s 2% target for more than five years and have moved further away from target in recent months. 

Global Financial Market Risk Appetite

Following a tricky first half of June, major equity indexes rebounded strongly on the news of an agreement to end the Middle East conflict, hitting new record highs in some cases. At the time of writing, however, sentiment appeared to be turning more cautious given the still-uncertain outlook.

What is the baseline scenario for the US-Iran MOU? The baseline scenario is that the ceasefire will broadly continue for two to three months. This would reduce shipping risks from Extreme to Severe, but with sporadic violations, contested maritime incidents, and proxy-linked attacks still likely.

What happens if the MOU is not fully implemented? If the MOU fails, risks to shipping in the Gulf, particularly around the Strait of Hormuz, would return to Extreme levels. This would likely involve Iran resuming efforts to seize, inspect, or attack vessels it claims are transiting without authorization.

How will the conflict's end affect oil prices? A full return to pre-conflict oil flow norms is uncertain and expected to be slow. The S&P Global Energy base case projects that this will not occur until the first quarter of 2027. While increased US exports and lower Chinese imports have provided some relief, depleted US inventories and the slow recovery in the Gulf mean crude prices are not expected to return to pre-conflict levels soon.

What other supply chain impacts are being monitored? Beyond oil, supply disruptions are affecting a range of materials. Shortages of sulfur and fertilizer are driving up copper and agricultural prices. S&P Global’s PMI® data indicates that soaring producer price inflation will increasingly impact consumer prices for core goods from the second half of the year.

• Oil Flow Restoration: The speed at which oil flows from the Middle East return to pre-conflict norms following the reopening of the Strait of Hormuz.
• US and China Oil Dynamics: The continued role of high US crude exports and reduced imports by mainland China in balancing global oil prices.
• Inflationary Pressures: The pass-through of commodity price increases, including oil, copper, and agricultural products, to producer and consumer price inflation.
• US Monetary Policy: The Federal Reserve's response to persistent inflation, with communications from new Fed chair Kevin Warsh being a key influence on market expectations.
• Financial Market Sentiment: The durability of the rebound in risk appetite, which remains cautious given the uncertain geopolitical and economic outlook.