This research article titled “The Peace That Passes All Understanding”, written by Tom Holland and published with kind permission from Gavekal Research, examines the complexity and fragility of the 14-day ceasefire reached on Tuesday, 7 April, just ahead of Donald Trump’s 8 pm Eastern Time deadline. While the situation remains tenuous, we believe that the US and Iran share a reality: neither side is positioned to secure a decisive outcome, and both are seeking a credible off-ramp that allows them to claim a measure of success. In our view, this opens a narrow window for diplomacy. The coming days will be critical, with the fate of the ceasefire hinging on whether a pragmatic compromise can be reached before the truce expires.
Asian stocks jumped, oil prices fell and the US dollar softened early Wednesday after the US and Iran agreed a Pakistani-brokered 14-day ceasefire pending negotiations to secure a permanent peace deal. However, the obstacles to a lasting peace are formidable, and markets will continue to price in a substantial war risk premium for the time being.
“Formidable” may even be an understatement. Judging by the comments published by each side, the gulf between them still appears all but unbridgeable.
In a post on social media, Donald Trump declared that US officials have “received a 10-point proposal from Iran, and believe it is a workable basis on which to negotiate.”
However, the 10-point plan published in Farsi by the Nour News agency, which is described as “close to Iran’s Supreme National Security Council,” is nothing less than a wish-list of the regime’s hardliners. Its demands include continued Iranian control over the Strait of Hormuz, US acceptance of Iran’s uranium enrichment program, the end of all sanctions, withdrawal of the US military from the Gulf region and war reparations.
It is almost entirely at odds with Trump’s own 15-point peace plan, tabled in late March, in which the US demanded that Iran drop all threats to shipping, hand over its enriched uranium, dismantle its nuclear facilities, accept limits on its missile program and end support for its “axis of resistance” regional proxies.
Similarly, there is a stark difference of tone between the Iranian government’s international statements, which are cautiously conciliatory, and its domestic propaganda, which is nakedly triumphalist.
For example, in an English-language statement published by Trump, Iranian foreign minister Abbas Araghchi acknowledged the US 15-point plan, agreed to halt “defensive operations” and promised “safe passage through the Strait of Hormuz.”
However, in its Farsi statement, Iran’s Supreme National Security Council declared that the US “enemy has suffered an undeniable, historic and crushing defeat in its cowardly, illegal and criminal war against the Iranian nation.” The US, it announced, had been forced by its defeat on the battlefield to accept Iran’s 10-point peace plan.
A divergence between diplomatic and domestic political rhetoric is no surprise—on either side. But the gaping differences between the US and Iranian positions indicate how difficult negotiations will be. And the many potential stumbling blocks suggest a high probability of failure.
Among these stumbling blocks will be the question of shipping through Hormuz. In his English statement the Iranian foreign minister promised safe passage for vessels “will be possible via coordination with Iran’s armed forces and with due consideration of technical limitations.”
Considering that before the war, almost 100 ships transited the Strait each day, without any coordination with the Iranian military and with no technical limitations beyond those to be expected in any crowded seaway, it is clear that the Iranian authorities have no intention of allowing maritime traffic to revert to pre-war normality.
Instead, the Islamic Revolutionary Guard Corps plans to continue levying a toll fee on passing ships in contravention of the principle of the right of innocent passage enshrined in the United Nations Convention on the Law of the Sea, which stipulates that “no charge may be levied upon foreign ships by reason only of their passage through the territorial sea”.
In the near term then, it is likely the number of vessels sailing through the Strait each day will increase from the handful that have made passage in recent days. Worsening fuel and feedstock shortages are a powerful incentive for Asian governments and shippers to reach a short-term accommodation with the IRGC.
However, given the lingering risks and uncertainties—attacks on shipping continued through Tuesday—it is unlikely that traffic will recover to pre-war levels any time soon, and certainly not within the two-week window scheduled for the current ceasefire.
As a result, although the price of Brent crude dropped to US$94/bbl in Asian trading Wednesday from as high as US$110/bbl late Tuesday, the oil price will continue to carry a hefty risk premium over its immediate pre-war level of around US$70/bbl.
And in the longer term, the evident willingness of the US president to pursue negotiations with the defiant Iranian regime suggests that the final outcome of the war will be closer to the scenario of US failure that Gavekal set out in the first week of the conflict than to the alternative scenario of US success.
This implies that oil and gas prices will remain elevated over the coming months, giving economies in Asia a powerful incentive to seek more secure sources of energy. It also implies that there will be no major long-term peace dividend for the Gulf, and that the prospect of a regional Ricardian boom promised by the potential rehabilitation of Iran into the international system will remain elusive.
In short, Tuesday’s ceasefire announcement is positive, as Wednesday morning’s market action clearly demonstrated. But the US and Iran (and Israel) will have a great deal of hard work to do to secure a lasting peace. And even then, the post-war environment will be far from optimal.
Source: Gavekal Research
