No strait path to normal: US-Iran stalemate continues

12 May 2026

Markets appear to be moving beyond the “no war, no peace, no oil” paralysis that has prevailed since the ceasefire, but the path to any US–Iran understanding now looks longer and more complicated. Crude prices have risen after President Trump said on Sunday that he did not like Iran’s response to the latest US proposal, reinforcing the view that any normalisation of Hormuz flows remains distant and that traffic through the strait will stay impeded for longer.

Despite renewed exchanges of attacks last week, both sides still appear reluctant to return to outright war, keeping diplomacy alive, if only narrowly. But Iran’s response to the latest proposal, which Trump reportedly called “totally unacceptable”, underlines how wide the gap remains.

This leaves Trump strategically boxed in. A coercive option — reopening Hormuz by force, potentially alongside airstrikes — would risk further damage to Gulf energy infrastructure without guaranteeing Iranian concessions. But accepting Iran’s current terms would hand Tehran greater leverage over global energy flows, an outcome Washington is unlikely to accept. Talks have not been abandoned, but meaningful progress looks unlikely before this week’s summit with Xi Jinping.

Even if an MoU is eventually reached, we would still expect any agreement to be interim rather than durable. It would not mean an immediate normalisation of flows. Mine clearance, tanker rerouting, insurance and crewing constraints, and continued political friction around transit arrangements all point to a slow, uneven and reversible recovery.

Oil

Last week’s crude sell-off has been amplified by stretched financial positioning, with the market responding more sharply to any signs of diplomatic progress than to renewed geopolitical tension. At the same time, delays to a Hormuz recovery have led us to deepen our assumptions for Middle East output losses and east-of-Suez refinery run cuts.

The physical market is not uniformly tight. Emergency stock releases have helped keep prompt crude supply relatively well-covered. By contrast, the loss of Middle East Gulf product exports and refinery run cuts has tightened diesel and other clean product balances more visibly.

Gas, power and AI



We see TTF Jun-26 as broadly fairly valued, assuming our base case of a Hormuz transit recovery to 50% of normal by end-June. Much of the market already expects disruptions into June, if not longer, and positioning data show limited outflows across the curve.

Repairs at QatarEnergy LNG South are now underway. We continue to assume both trains will return in April 2029, followed by a six-month ramp-up to their combined 12.5 Mtpa nameplate capacity.

Macro

AI-led manufacturing strength may be masking broader economic weakness. While manufacturing and investment data remain firm, services indicators are softening, and inflation is proving stickier than expected.

That keeps us cautious. Higher energy prices, tariff effects and AI-driven Capex are likely to sustain inflation and keep central banks on guard. Meanwhile, equity market gains are becoming increasingly narrow, suggesting headline resilience may be hiding a more fragile macro backdrop.

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