Just as American drivers were staring at $4.50 per gallon at the pump, the markets delivered a sudden jolt of hope.
The price of oil plunged, and stocks surged early Wednesday after a new report that the United States believed it was nearing a deal to end the war with Iran and eventually reopen the Strait of Hormuz. Officials in Washington and Tehran were working on “a one-page memorandum of understanding to end the war and set a framework for more detailed nuclear negotiations,” according to the report from Axios, which cited two US officials and two additional sources.
A spokesperson for Iran’s foreign ministry told Iranian news outlet ISNA that a US proposal was currently under review, and said that Iran planned to convey its assessment to mediator Pakistan.
Meanwhile, Iran’s navy said in a post on X Wednesday morning that “with aggressor’s threats neutralized and new protocols in place, safe, stable passage through SOH will be ensured.”
President Donald Trump, in his own post minutes later, said the war would end, and the strait would reopen “assuming Iran agrees to give what has been agreed to, which is perhaps a big assumption.” He warned Tehran to agree to his terms or “the bombing starts, and it will be, sadly, at a much higher level and intensity than it was before.”
The whiplash for markets was immediate and dramatic.
The Market Moves
Markets reacted swiftly to the initial report, sending the price of US crude oil plunging by as much as 15 percent to $88 per barrel, and international Brent crude oil down as much as 11 percent to $96 per barrel. Wholesale gas prices dropped by 5 percent. Heating oil — a proxy for jet fuel — fell 6 percent.
Stocks soared. The S&P 500 rose 0.7 percent. The Nasdaq Composite jumped 1 percent. The Russell 2000 index added 0.8 percent. The Dow Jones Industrial Average traded up by 500 points. European markets also jumped, with the broad Stoxx 600 index soaring more than 2.1 percent.
Bond yields dropped sharply, with the 10-year and 30-year US government bond yields falling nearly to their lowest levels since last week. Falling bond yields quickly translate into relief for consumers. As bond rates have risen during the war, so have borrowing costs for consumers taking out loans or mortgages. The average 30-year fixed-rate mortgage rate was 6.54 percent. That rate will likely fall if Wednesday’s market moves hold.
But then Trump spoke.
The Trump Factor
Those market moves moderated slightly after Trump told the New York Post in an interview that it was “too soon” to prepare for a peace deal signing. As of 9:45 a.m. ET, US crude returned to trading around $95 per barrel, and Brent rose back to about $103.
The volatile reaction reflects a fundamental reality: the markets are desperate for an end to the war, but they no longer trust any single headline.
Trump himself has been the primary source of whiplash. Just days before announcing “great progress,” he said he doubted Iran’s latest proposal would be acceptable. He has also suggested that internal divisions in Tehran have hampered talks — something Iran has denied.
The shifting narratives from Washington have sent markets on a wild ride. At one point, some major indexes had fallen more than 10 percent from their most recent record highs.
The Gas Price Reality
Shortly before the Axios report and the market reaction, the average US retail gas price jumped past $4.50 per gallon for the first time since July 2022. The nationwide average of $4.54 is now fewer than 50 cents from its all-time high of $5.02, which it reached in June 2022.
Since the war with Iran started, gas prices have surged more than 50 percent for American consumers.
The reason is the Strait of Hormuz. Normally, hundreds of ships per day transit the strait, bringing more than 20 percent of the world’s oil supply to global markets. On Tuesday, just one ship crossed. On Monday, that figure was only four ships.
The effective shuttering of the key trade route since the US-Israeli war began has been a primary cause of the more than 40 percent jump in oil prices.
The Confusing Signals
The reported progress toward ending the war on Wednesday came after Trump abruptly ended “Project Freedom” — an effort to help guide stranded commercial vessels through the Strait of Hormuz. Trump cited “great progress” in peace talks. His pause came after multiple officials earlier Tuesday held briefings and gave interviews promoting the project. As of late Tuesday, only two commercial vessels were guided safely to freedom, both of which had US military security teams aboard as Iran launched attacks against them, two US officials told NBC News.
Thousands more ships remain stranded and unable to cross the critical waterway.
US officials have insisted that the ceasefire between the two countries is still in place despite this week’s exchange of fire in the strait.
Previous efforts to reach a deal have fallen short. Vice President JD Vance, special envoy Steve Witkoff, and Trump’s son-in-law Jared Kushner held in-person talks in Islamabad last month but left empty-handed. A second round of talks was set to be held but was canceled after Trump said Iran’s offer was “not good enough.”
“They can call us anytime they want,” Trump said after canceling the trip.
Since efforts to end the war began, Trump has frequently switched between publicly projecting progress and dismissing the talks as futile.
The Bottom Line
Oil prices plunged, and markets surged on Wednesday on reports that the US and Iran were nearing a one-page memorandum of understanding to end the war and eventually reopen the Strait of Hormuz. US crude fell as much as 15 percent to $88 per barrel. The S&P 500 rose 0.7 percent. The Dow jumped 500 points.
But Trump quickly tempered expectations, telling the New York Post it was “too soon” to prepare for a peace deal signing. Oil prices partially recovered. The whiplash reflects the market’s desperate hope for an end to the war — and its deep uncertainty about whether a deal will actually materialize.
Meanwhile, the average US gas price hit $4.54 per gallon, up more than 50 percent since the war began. The Strait of Hormuz, which normally carries hundreds of ships per day, saw just one crossing on Tuesday. Thousands of vessels remain stranded.
The reports of a deal sent a shockwave through global markets. Whether that shockwave leads to lasting relief — or another false dawn — depends on what happens in the next 48 hours.
