ING flags risks to Hormuz reopening as US-Iran MoU starts the clock on talks

Financial markets have priced in too much optimism over the speed at which the Strait of Hormuz will reopen following the US-Iran Memorandum of Understanding (MoU), ING said in a research note on June 18.

US President Donald Trump signed the MoU with Iran in Versailles overnight, with Iranian President Masoud Pezeshkian also putting his name to the document on Wednesday, the Dutch bank said. The agreement sets out the terms of a ceasefire, the reopening of the Strait of Hormuz, limited financial relief for Tehran and Iran's renewed pledge never to build a nuclear weapon.

Under the draft, Washington will permit Iran to sell oil and petrochemical products, and Tehran may gain access to a $300bn development fund if it meets nuclear-related commitments in further talks. The document does not address the fate of Iran's highly enriched uranium. Its signing triggers a 60-day, extendable negotiation period intended to flesh out the detail.

ING was careful to frame the MoU as the start of negotiations rather than a finished deal, noting it may have softened some of the red lines Washington set in the early stages of the three-and-a-half-month war.

Whether the talks succeed, the bank said, is a separate question. It also observed that recent developments had drawn the US and the rest of the G7 closer, with this week's G7 meeting among the more harmonious in recent memory, though it attributed the mood to pragmatism: Washington needs European backing for the Iran talks, while Europe needs US support for any future negotiations with Russia.

The bank cautioned that the reopening of the waterway would be gradual rather than immediate. Mines must be located and cleared, insurance premiums set and vessels loaded before traffic can resume, a process it expects to take several months to return to pre-war levels. Market relief, it argued, reflects the reopening of the Strait rather than a wholesale dissolution of geopolitical risk.

Oil prices have already fallen, easing some inflation fears. ING said the latest wave of price pressure would now be shorter-lived than assumed weeks ago, reviving the prospect of "transitory" inflation and complicating central bank decisions on whether to raise rates at all.

The bank set out three scenarios. Its base case sees a longer-term deal agreed, blockades lifted and shipper confidence returning, allowing a quick recovery in flows and Iranian exports eventually climbing above pre-war levels. A second, stalled-negotiation path keeps energy flows heavily constrained until late July, when tight stocks drive prices higher and force renewed efforts to strike a deal.

A third, re-escalation case sees talks break down and significant conflict resume, with Houthi attacks disrupting Saudi Red Sea oil exports and the UAE's Fujairah and regional energy infrastructure targeted, heavily disrupting flows until at least year-end and peaking in the seasonally stronger third quarter.

In its base case, ING put Brent crude at $97 a barrel in the second quarter, easing to $85 in the fourth. Under re-escalation, it saw prices spiking to $160 in the third quarter.

On policy, the bank expects a prolonged Federal Reserve pause, with US inflation falling to 3.6% in the fourth quarter and near the 2% target by next summer. It still anticipates a second European Central Bank hike this summer despite lower energy prices, followed by a single cut in mid-2026. The Bank of England, it said, has had its life made easier by the deal, with inflation peaking around 3.5% and rate cuts not expected until 2027.

On currencies, ING modestly raised its EUR/USD profile, seeing the pair near 1.18 by year-end after near-term pressure around 1.14-1.15.