A US-Iran deal to reopen the Strait of Hormuz and lift oil sanctions is pushing gas prices below $4. Kalshi markets see the relief holding through June, even as traders watch closely for signs of instability in the broader agreement.
Gas prices and the Iran deal
The market for gas prices in the US this week predicts the price will average $3.90 a gallon.
The market for gas prices this month shows traders predict it will average $3.80.
New Iran deal
The short term gas markets seem to be reacting to the agreement reached between the United States and Iran. Both sides agreed to and signed a deal to end the conflict, but some loose threads still remain in further negotiations.
According to the New York Times, under the agreement, Iran will reopen the Strait of Hormuz to regular traffic, receive $300 billion for reconstruction, and have restrictions and sanctions on its oil exports lifted.
So far, there is no agreement regarding Iran’s nuclear program. Instead, the latest agreement pushes the issue into a “60-day negotiation period that could be extended by ‘mutual consent.’”
How does it affect oil prices?
Several terms of the deal with Iran are expected to bring prices down further.
The Wall Street Journal reported that reopening the Strait of Hormuz is a key part of the agreement because roughly one-fifth of the world's oil supply moves through the waterway. It could “take months” for traffic to return to normal “as vessel operators contend with logistical and security hurdles – including repositioning tankers, rescheduling port calls, and securing insurance coverage.”
The removal of the US naval blockade will also allow Iranian production to “enable exports to restart rapidly and support a swift rebound in production and loadings.”
Disagreement over the deal
Meanwhile, criticism is coming from both sides of the political aisle over the deal President Trump signed to end the conflict in Iran.
The Hill reported that some Republicans on Capitol Hill are warning that “giving Iran’s theocratic regime access to billions of dollars in economic relief would be a major ‘blunder.’”
Sen. Bill Cassidy offered some of the harshest criticism of the deal saying, “Ronald Reagan is rolling over in his grave” and calling it the “worst foreign policy blunder in decades.”
Cassidy and other legislators also criticized the fact that the deal delays talks about Iran’s nuclear ambitions, gives Iran money to rebuild new infrastructure, and the lifting of sanctions on the region.
Sen. Ted Cruz added that he feels “the president is receiving some very poor advice on this deal.”
Traders appear to believe the agreement could help lower fuel prices in the short term by improving oil flows, while lingering uncertainty about the longer-term relationship with Iran may keep upward pressure on prices later this year.
The takeaway:
Kalshi markets now predict
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