Markets Hit Records on Iran Deal Hopes as Oil Prices Ease

Wall Street is loving the idea of peace — even if the peace isn't actually here yet.

Stocks hit fresh all-time highs this week, and gas prices have started to ease, all because there's a glimmer of hope that the U.S. and Iran might be close to a deal to stop the fighting and reopen a critical shipping lane called the Strait of Hormuz. That narrow passage off the coast of Iran is where roughly an estimated 20% of the world's oil flows through — so when it's blocked or threatened, energy prices skyrocket everywhere.

Here's the quick background: stocks have climbed to new records despite the jump in oil prices since the Iran war began in late February, mostly riding on optimism that the conflict would be short-lived. But it hasn't been painless. Higher oil prices have pushed up gasoline and other energy costs, driving inflation to its highest level in almost three years and squeezing household budgets. If you've been sticker-shocked at the gas pump lately, this is why.

Gasoline prices surged to an average of $4.54 a gallon — the highest since July 2022 — with the price of regular gas jumping 52%, or $1.56 per gallon, since the start of the Iran war in late February. That's real money out of your pocket every time you fill up.

Now, here's what got markets excited: Vice President JD Vance said Thursday that Iran and the U.S. were "very close," but "not there yet," to agreeing on a memorandum of understanding that would extend the current ceasefire for two more months, reopen the Strait of Hormuz, and spark deeper talks on contentious issues including Iran's nuclear program. In plain English: a temporary truce extension and a promise to talk about the hard stuff later.

On Wednesday, U.S. stocks inched to more records after oil prices declined more than 4%. The S&P 500 edged up to 7,520.36, the Dow rose to 50,644.28, and the Nasdaq gained to 26,674.73 — all three indices setting all-time highs. And the average price for a gallon of gasoline stood at $4.49 on Tuesday, down from $4.53 a week earlier, according to AAA. Small movement, but a sign of the direction markets are hoping for.

But here's the reality check: this deal is far from done. Iranian negotiator Mohammed Bagher Ghalibaf posted on X that his country was obtaining "concessions not through talks, but through missiles," adding that Tehran has "absolutely no trust in guarantees or words — only actions matter" and that "no step will be taken before the other side acts first." That's not exactly the tone of a party ready to sign.

Clear sticking points between the two sides remained, with Iran's Fars news agency reporting the Strait of Hormuz would remain under Iran's management and dismissing Trump's announcement of a "largely negotiated" deal as "incomplete and inconsistent with reality."

Meanwhile, the U.S. military carried out another round of strikes on Iran, which officials described as defensive, targeting a military site that posed a threat to American forces and commercial traffic. So the guns are still firing even as diplomats are talking.

For you personally, the bottom line is straightforward: markets increasingly believe economic pressure will force diplomacy to move faster than military escalation, as one analyst put it, because the conflict has set off what Gulf states called the worst global energy crisis in decades, with higher energy prices in the U.S. feeding rising inflation. A real deal would mean lower gas prices, easing inflation, and a more stable economy. But analysts are cautioning not to get too far ahead of things — oil futures are still pricing in a quick resolution to the Iran war, but analysts warn that investors and consumers are likely to be left disappointed.