Iran Sends Ceasefire Reply via Pakistan as Markets Watch

Iran delivered a written response to a U.S. ceasefire proposal through Pakistani mediators and forwarded the reply to Washington. Tehran has not released the text of its response, and market participants are watching for developments.

The ceasefire package was intended to reopen the Strait of Hormuz and restart talks on Iran’s nuclear program. Pakistani officials transferred Tehran’s response to U.S. counterparts; Iranian authorities provided no public details.

Traders and policymakers are monitoring how the diplomatic exchange may affect oil flows and U.S. interest-rate expectations. Tensions involving Iran, Israel and U.S.-aligned forces have influenced energy markets since February, prompting concerns about potential supply disruptions.

Higher oil prices can add to inflationary pressure and delay expectations for Federal Reserve rate cuts, while lower rates generally support riskier assets such as technology stocks and cryptocurrencies.

Andrew Slimmon, head of Applied Equity Advisors at Morgan Stanley Investment Management, suggested markets could price in earlier rate cuts if the conflict cooled, adding, “If that’s in the next couple weeks, then it could be by the end of this year.” Futures markets still reflect scenarios in which the Fed keeps rates elevated if U.S. economic data proves stronger than expected.

Bitcoin and other crypto assets have shown sensitivity to macroeconomic shifts. Bitcoin climbed more than 35% in a month during the 2023 U.S. regional banking crisis and fell by more than 60% in 2022 as inflation and aggressive rate hikes affected speculative markets. On-chain analytics have shown Bitcoin moving in step with the Nasdaq during major macro-driven swings, and traders have shifted into stablecoins during periods of uncertainty before returning to more volatile assets.

Security incidents in the Gulf continued while diplomatic channels operated. Gulf states reported intercepting drones in their airspace. A drone strike caused a fire aboard a vessel near Qatar’s coast, and an attack struck a camp used by an Iranian Kurdish rebel group near Erbil in northern Iraq. These incidents followed the collapse on May 4 of a private convoy operation that had aimed to escort commercial vessels through the Gulf; that operation ended after attacks targeted U.S. naval assets and oil infrastructure in the United Arab Emirates.

Iranian military officials issued warnings that countries enforcing sanctions could face consequences when their vessels transit the Strait of Hormuz. Israeli leaders say the conflict cannot fully end while Iran retains a stockpile of highly enriched uranium. The International Atomic Energy Agency estimates Iran holds roughly 440 kilograms of uranium enriched to about 60% purity.

Former President Donald Trump said U.S. forces monitor Iranian facilities closely and warned of military consequences if hostile actions occur, saying, “We have it surveilled. If anybody got near the place, we will know about it, and we’ll blow them up.” He plans a visit to China, where Beijing has urged de-escalation and restoration of safe commercial passage through the Strait.

How Tehran’s reply will affect diplomacy and markets remains unclear.