Trump Repeatedly Calls for Peace—Is the Market Buying It? Hormuz Strait Talks Stall as Experts Warn of Oil Price Surge

The Trump administration released optimistic signals this week that the U.S. and Iran might soon reach an agreement on the Strait of Hormuz, driving oil prices down and stock markets up. However, no agreement ultimately materialized. This scenario feels familiar: President Trump has declared dozens of times that the U.S. and Iran are on the verge of a deal to end a conflict that has lasted over five months. Why does the market keep buying into these claims?

Helima Croft, Head of Global Commodities Strategy at RBC Capital Markets, said, "There is an extreme optimism bias in the market."

Markets continue to assume that a diplomatic path serves the interests of both the U.S. and Iran. Croft noted that some investors appear to "treat the agreement as a time machine," believing that once a deal is reached, the Middle East can revert to its pre-war state—though this is unlikely.

Recent conflict has centered on the Strait of Hormuz, where Iran has effectively blocked passage, triggering global energy supply shocks, pushing up gasoline prices, fueling inflation, and raising market concerns over oil reserves.

White House spokesperson Anna Kelly said, "The president always prefers a diplomatic path, but he keeps all options on the table to ensure Iran never acquires nuclear weapons."

Even those who believe diplomacy remains a viable path to peace acknowledge that the future of the Strait of Hormuz remains a difficult issue to resolve.

Claudio Galimberti, Partner and Chief Economist at Rystad Energy, said, "There remains a fundamental divergence over the fate of the Strait of Hormuz: Iran wants to charge service fees, while the U.S. wants to restore the pre-war status quo—keeping the strait as an international, freely navigable waterway."

Bessent and Trump Signal a Deal Is Imminent

Oil markets are desperate for any sign of progress toward reopening the Strait. On Tuesday, U.S. Treasury Secretary Scott Bessent strongly signaled optimism, suggesting that an agreement to ensure "free passage" through the strait could be reached within hours.

He said that day, "We are negotiating with the Iranians. There's a possibility we could reach an agreement today or tomorrow to reopen the strait and move this conflict toward a more normalized state."

After Bessent's remarks, oil prices plunged, stocks surged, and bond yields fell. At the time, investor optimism dovetailed with the AI-driven tech stock rally.

Yet crude oil prices remain far above pre-war levels, and traders continue to swing between hope for a lasting solution for the Strait of Hormuz and fears that the U.S. might escalate military action.

Bob McNally, President of Rapidan Energy Group, believes the market "remains in a volatile, trial-and-error transitional state." "While Iran and Oman may reach a limited agreement on managing the strait, we don't see a broader, lasting agreement between the U.S. and Iran that would normalize the strait—the kind the oil market is hoping for."

Nonetheless, Bessent's comments further boosted already optimistic market expectations. Trump had already announced on Sunday night the cancellation of a large-scale attack on Iran, citing a "framework for agreement."

This echoes Trump's past pattern of threatening to completely destroy Iran, only to retreat to the negotiating table, and it pushed stocks higher on Monday, with the Dow Jones Industrial Average closing at a record high.

On Tuesday evening, Trump doubled down, saying a deal to reopen the Strait of Hormuz "could" be reached as early as Wednesday or Thursday, as "a lot of progress" had been made.

Although Trump extended Bessent's proposed timeline, his remarks continued to fuel investor expectations. The Dow closed at another record high on Wednesday, while oil prices remained stable.

Iran Rejects Trump's Claims

As U.S. stocks surged, Iran repeatedly emphasized that it is not actively negotiating with the United States.

Iran says it is negotiating with Oman, another major Gulf power, to independently reach an agreement on shipping through the Strait of Hormuz.

Trump angrily rejected this, insisting that U.S.-Iran talks are ongoing and criticizing Iran's denial as "two-faced." He continues to claim that the U.S. has full control over the Strait of Hormuz, though in reality, vessel traffic remains far below pre-war average levels, when about 20% of the world's oil passed through this waterway.

Iranian state media reported on Thursday a draft agreement for the Strait of Hormuz that would ban U.S. and Israeli vessels from passing through, along with other restrictions. Market hopes for an imminent deal were temporarily dashed.

The Trump administration quickly dismissed the draft reported by Iranian media as unacceptable. A U.S. official said, "No temporary route will have any obstacles—no approvals or permits, no tolls or other fees. The Strait of Hormuz is an international waterway; no party can control the route or right of passage."

On Thursday afternoon, when asked if the U.S. had already reached an agreement to reopen the Strait of Hormuz, Trump replied, "I don't want to say it's done. It's open now."

He added, "I think we're doing very well. I'm involved in the negotiations. I think progress is good... It could happen very soon."

Since the war began, Iran has maintained a hardline, provocative stance toward the U.S., repeatedly mocking Trump. Iranian Parliament Speaker Mohammad Bagher Ghalibaf posted on X (formerly Twitter) on Thursday afternoon, sarcastically: "'Massive attack coming... Wait, they want to negotiate.' This is the dramatic diplomacy that keeps repeating."

Ghalibaf wrote, "Using bullying, broken promises, and fake news as leverage is a failed strategy."

"Deep-Rooted Optimism Bias"

As the war enters its sixth month, reports suggest U.S. oil reserves and key ammunition stocks are dwindling. Analysts are beginning to question how long the market can remain optimistic based on hopes of an imminent deal.

RBC's July 28 strategy report noted that "headline-driven price pullbacks may make markets believe the economic costs of the conflict remain manageable," but the continued drawdown of the U.S. Strategic Petroleum Reserve (SPR) indicates "global buffer capacity is weakening."

McNally of Rapidan warned that if the parties fail to control military escalation or continue depleting reserves, causing the market's "deep-rooted optimism bias" to fade, oil prices could surge back to highs, forcing the market to suppress prices by reducing consumption.

Galimberti of Rystad said, "My instinct is that if they want to avoid a costly stalemate, avoid oil prices rapidly returning to April levels or higher while Iranian oil supply is almost completely cut off, then both sides must start bridging their differences and move their red lines toward the center."