Iran Expected to Respond Today to US Peace Proposal as Oil Tumbles and Markets Hold Breath

Iran is expected to deliver its response today—Thursday, May 7—to the United States' proposal for ending the two-month war that has paralyzed global energy markets and sent shockwaves through the world economy, according to multiple sources cited by CNN and Reuters.

The anticipated response marks a critical inflection point for financial markets, which have whipsawed violently this week on alternating signals of diplomatic progress and continued military tensions. Brent crude extended its slide Thursday, trading around $99.80 per barrel after plunging nearly 8% the previous session, while the US Dollar Index (DXY) hovered near 98.00—close to pre-war levels—as safe-haven demand evaporated on deal optimism.

The 14-Point Memorandum: What's on the Table

Sources familiar with the negotiations told CNN that the two sides are moving closer to agreement on a short, one-page memorandum of understanding outlining key provisions for ending hostilities. Among the reported terms of the 14-point proposal:

• Suspension of Iranian uranium enrichment activities
• Removal of US economic sanctions on Iran
• Restoration of free transit through the Strait of Hormuz
• Framework for more detailed nuclear negotiations

However, Reuters reported Wednesday that the memorandum does not address several demands Washington has insisted on in the past, including curbs on Iran's missile program and an end to its support for proxy militias across the Middle East. These omissions highlight the fragility of the diplomatic process and the potential for negotiations to collapse even as both sides edge toward a deal.

President Donald Trump said Wednesday the US had "very good talks" with Iran over the previous 24 hours, while simultaneously issuing a fresh threat to resume military action if Tehran fails to comply with American demands.

Oil Markets Whipsaw on Deal Hopes

The oil market's reaction has been nothing short of dramatic. Brent crude plummeted from a 2026 high of $114 per barrel on Monday to below $97 on Wednesday—its steepest two-day decline in years—before recovering modestly to close at $101.27. By Thursday morning (Asian hours), prices resumed their slide, trading around $99.80.

West Texas Intermediate (WTI), the US benchmark, fell to $93.50 per barrel Thursday, down from over $105 earlier in the week. The collapse erased more than $15 per barrel in value as traders priced in the possibility that the Strait of Hormuz—through which roughly 20% of global oil supply normally flows—could reopen within weeks.

"Even if we get a deal over the coming days, we do not see oil prices going back to pre-war levels," Mohit Kumar, chief European economist at Jefferies, wrote in a Thursday note. The investment bank sees Brent crude settling around $80 per barrel in three to six months—roughly 25% above pre-war levels—reflecting structural disruptions that will take months to unwind.

Shell reported Thursday that first-quarter profits jumped $1.3 billion, driven in part by "unprecedented disruption in global energy markets" and wild swings in oil prices. CEO Wael Sawan said the company's traders profited from volatility by accurately predicting price movements during the conflict.

Dollar Weakens as Risk Appetite Returns

The US Dollar has surrendered much of its war-driven gains as optimism over a potential deal reduces safe-haven demand. The Dollar Index (DXY), which measures the greenback against a basket of six major currencies, fell to 97.63 on Wednesday—its lowest level since February, before the war began—and traded around 98.00 Thursday.

EUR/USD rallied above 1.13 as European currencies benefited from easing energy crisis fears. The euro zone has been particularly vulnerable to the oil shock, with cpi" title="Understanding inflation and CPI in forex">inflation pressures mounting as crude prices surged past $110 earlier this week.

Meanwhile, the Japanese yen strengthened sharply amid suspected intervention by Tokyo authorities. USD/JPY dropped from above 160 earlier this week to around 157 on Thursday, with traders citing both intervention fears and reduced demand for the dollar as a safe haven.

"USD downside is limited because recent US economic data are likely to keep odds of Fed funds rate hikes in play," Elias Haddad, global head of markets strategy at Brown Brothers Harriman, said in a note. He cautioned that while deal optimism is driving short-term dollar weakness, underlying inflation concerns could support the greenback if oil prices stabilize at elevated levels.

Equity Markets Surge on Peace Hopes

Global equity markets rallied Wednesday on hopes that a deal could avert a prolonged economic crisis. The S&P 500 surged to an all-time high, while European and Asian indices posted strong gains. US stock futures pointed to further gains Thursday, with the Dow Jones Industrial Average set to open more than 400 points higher.

The relief rally reflects investor hopes that lower oil prices will ease inflation pressures and reduce the likelihood of further interest rate hikes by the Federal Reserve. However, analysts warn that markets may be getting ahead of themselves, given the numerous obstacles that remain before a final agreement is reached.

The Strait of Hormuz Standoff

Approximately 1,600 ships remain stranded near the Strait of Hormuz, unable to transit the vital waterway that links Persian Gulf oil producers to global markets. The Trump administration's brief 48-hour operation to escort ships through the strait guided only two vessels before being suspended.

Shipping companies face an agonizing calculation: whether to risk transiting the strait without US military protection, potentially exposing multimillion-dollar vessels and their crews to Iranian missiles. Insurers have invoked wartime clauses that exempt them from covering vessels in active combat zones, leaving companies to bear the full financial risk of any losses.

At least 32 ships have been hit with missiles since the war began in late February, resulting in 10 deaths and at least a dozen injuries, according to the International Maritime Organization. The IMO has urged maximum caution and warned that "naval escorts are not a sustainable long-term solution."

On Wednesday, Iran launched a new body it says will govern traffic through the strait, formalizing its control over the chokepoint in defiance of US warnings. The US military responded by firing on an Iranian-flagged tanker heading to an Iranian port, enforcing its blockade.

Key Levels to Watch

Traders are watching several critical technical and fundamental levels as markets await Iran's response:

• Brent crude: Support at $95-$97 per barrel; resistance at $105-$108. A break below $95 would signal markets are pricing in a high probability of deal completion.
• WTI crude: Key support at $90 per barrel; resistance at $100. A sustained move below $90 would represent a complete unwinding of war premiums.
• DXY: Support at 97.00-97.50 (pre-war levels); resistance at 99.00-99.50. A break below 97.00 would confirm a full reversal of safe-haven flows.
• EUR/USD: Resistance at 1.1350-1.1400; support at 1.1200. A push above 1.14 would target 1.15 as energy crisis fears fade.
• Gold (XAU/USD): Trading around $4,700 per ounce, with support at $4,580-$4,600. Gold has rallied despite dollar weakness, reflecting ongoing geopolitical uncertainty.

Risks Remain Despite Optimism

While markets are pricing in a significant probability of a deal, numerous risks remain:

• Unresolved sticking points: Iran has consistently rejected curbs on its missile program and support for regional proxies—issues the US has historically demanded in any comprehensive agreement.
• Domestic political pressures: Both Trump and Iranian leadership face hardliners who oppose compromise.
• Implementation timeline: Even if a framework is agreed, unwinding sanctions, reopening the strait, and resuming oil flows could take weeks or months.
• Fragile ceasefire: Israel's Wednesday strike on a Hezbollah commander in Beirut—the first since the Lebanon ceasefire—underscores the fragility of regional stability.

"Nothing has been agreed," Axios reported Wednesday, cautioning that while the parties are closer than they've been since the war began, significant obstacles remain.

Central Bank Watch

The potential deal has major implications for central bank policy globally. The European Central Bank (ECB) has signaled it may raise interest rates in June if oil-driven inflation remains elevated, while the Federal Reserve has maintained a wait-and-see stance on further hikes.

A breakthrough that brings oil prices down toward $80 per barrel would ease inflation pressures and likely reduce the probability of further rate hikes. Conversely, a collapse in negotiations that sends oil back above $110 would force central banks to choose between fighting inflation and supporting economic growth.

What Happens Next

All eyes are on Tehran today as Iranian officials prepare to deliver their response via Pakistani mediators. Sources told CNN that Iran is expected to convey its position sometime Thursday, though the exact timing remains unclear.

Markets are likely to remain volatile until the content of Iran's response becomes public. A positive signal could trigger another leg lower in oil prices and a further rally in risk assets. A rejection or counter-proposal that delays agreement could send oil spiking back toward $110 and trigger a rush back into safe-haven assets like the dollar and gold.

For forex traders, the hours ahead represent both opportunity and danger. Those positioned for a deal breakthrough stand to profit from continued dollar weakness and strength in risk-sensitive currencies like the Australian dollar (AUD), Canadian dollar (CAD), and Norwegian krone (NOK). But a surprise rejection could trigger a violent reversal, punishing those caught on the wrong side of the trade.

As one veteran oil trader put it: "We're either at the beginning of the end of this crisis, or the end of the beginning. The next 24 hours will tell us which."