Peace in the Gulf? The Impact on Oil Prices, Inflation, and Markets
It's been quite a week: the Knicks won the NBA Finals, Team USA opened the World Cup with a victory over Paraguay, SpaceX's IPO made Elon Musk the world's first trillionaire, and the United States reached a preliminary peace agreement with Iran. While some of those headlines may sound more believable than others, the peace agreement may have the biggest impact on investors. Financial markets responded positively to the news, with stocks moving higher, oil prices falling, and interest rates moving lower. So what does this agreement actually mean, and how could it affect your portfolio?
The agreement, referred to as a "memorandum of understanding," includes a plan to reopen the Strait of Hormuz, which is a key shipping route for oil and gas. A more complete, final deal is expected to be worked out over the next 60 days. While this news is encouraging, particularly from a humanitarian standpoint, many important questions remain. The full text of the agreement has not yet been made public, and disagreements persist on difficult issues such as Iran's nuclear program and economic sanctions, which are restrictions placed on a country to influence its behavior.
For investors, it is worth keeping in mind that there have been many temporary ceasefires and failed negotiations since this conflict began. Each of those events caused short-term swings in the market as investors reacted to the latest news. While the current developments are positive, they are happening against a backdrop of markets that have already been moving higher and an economy that has continued to hold up well.
Oil prices and inflation: possible relief at the pump
Energy prices are the main way that conflicts in other parts of the world affect everyday life at home. The Strait of Hormuz is one of the world's most important waterways for shipping oil and gas. When it was effectively closed off, major oil-producing countries in the Middle East had to cut back on how much they were producing because they ran out of places to store it. Even before the preliminary peace deal was announced, oil prices had already started coming down, falling more than 25% from a peak of $118 per barrel in April to around $85 per barrel.1
History shows that while conflicts in the Middle East can cause oil prices to jump, those increases often do not last. Over time, what really drives oil prices are supply and demand, such as how much oil the U.S. is producing. This is why economists often call these kinds of disruptions "transitory," meaning the effect on prices tends to fade once the underlying problem is resolved. Reopening the Strait of Hormuz would be an important step forward, even if it takes some time for prices at the gas pump to return to more typical levels.
Gasoline prices followed a similar pattern. The average price for regular unleaded gasoline climbed above $4.50 per gallon at its highest point in late May before pulling back to around $4.00 per gallon more recently. The latest Consumer Price Index report, which is a common measure of inflation or how fast prices are rising, shows that energy prices have gone up 23.5% compared to a year ago, with gasoline up 40.5%. This surge in energy costs was the main reason overall inflation reached 4.2% in May, the highest it has been in several years.2
While higher prices create real challenges for households, this situation has not turned into a repeat of the widespread inflation seen after the pandemic. Notably, core inflation, which is a measure that leaves out food and energy prices because they tend to be more volatile, rose only 2.9% year over year in May. This suggests that higher oil prices have not spread broadly across the rest of the economy. If oil prices keep trending lower, that could help ease overall price pressures and give the Federal Reserve, the central bank that manages interest rates and inflation in the U.S., more room to work with as it balances higher inflation against a strong job market.
Markets have seen healthy gains this year across many types of investments3
Beyond energy markets, many types of investments have held up well this year. The U.S. stock market has posted strong gains, with the S&P 500, which tracks 500 large U.S. companies, showing a year-to-date return of around 10%, supported by solid company earnings and a healthy economy.4 Bonds, which are loans made to governments or companies that pay back interest over time, have also helped steady portfolios during turbulent periods, even though the Bloomberg U.S. Aggregate Bond Index is roughly flat on the year.5 The 10-year Treasury yield is below 4.5%, and the 30-year yield is under 5%, as both inflation and uncertainty have eased. Stocks in other countries have also performed well, continuing a positive trend from the past two years.6
Many different parts of the market have contributed to these results. Eight out of eleven major sectors within the S&P 500 are showing positive returns for the year. The energy sector has been the standout performer, gaining roughly 27% year to date as higher oil prices boosted revenues for energy producers. Sectors that tend to be more stable, such as Utilities and Consumer Staples, which include things like electricity providers and everyday household goods companies, also held up relatively well as investors looked for safety. Information Technology saw some ups and downs due to changes in interest rates, but still delivered a return of about 17.5% year to date.
This is a helpful reminder of why keeping a balanced portfolio across different parts of the market matters. Geopolitical events, inflation, and interest rates are hard to predict. Holding a mix of investments that can support each other through uncertain times is one of the best ways to manage risk while still pursuing growth.
A long-term perspective on geopolitics and economic cycles is key for investors
Over the past hundred years, world events, including wars, oil embargoes, and regional crises, have tested financial markets time and again. While these events often caused short-term volatility, meaning sharp swings in prices, markets typically recovered and moved higher even when the underlying situations were not fully resolved. Looking at the long picture, as shown in the chart above, it becomes clear that what really drove long-term investment performance was not any single event but rather the broader economic and market cycles playing out over time.
The announcement of this preliminary agreement is undoubtedly good news. That said, it is worth remembering that a well-built portfolio does not rely on any single development to perform well. Lower energy prices should help reduce inflation, give households more spending power, and ease costs for businesses that depend on transportation. All of these factors support the broader economy. This moment also serves as a timely reminder of why staying invested and keeping a focus on long-term financial goals is so important.
Have a wonderful week ahead!
1. Clearnomics research, CME Group data as of June 12, 2026
3. Asset classes included are MSCI Emerging Markets Index (EM), MSCI Developed Markets Index (EAFE), MSCI World Small Cap Index (Small Cap), S&P 500, balanced portfolio, fixed income, and MSCI World Commodity Producers Index (Commod.). The balanced portfolio is a historical 60/40 portfolio consisting of 40% U.S. large cap, 5% small cap, 10% international developed equities, 5% emerging market equities, 35% U.S. bonds, and 5% commodities.
4. Clearnomics research, Standard & Poor's data through June 12, 2026
5. Clearnomics research, Bloomberg index data through June 12, 2026
6. Clearnomics research, MSCI index data through June 12, 2026
Index Descriptions
S&P 500
The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The modern design of the S&P 500 stock index was first launched in 1957. Performance prior to 1957 incorporates the performance of the predecessor index, the S&P 90.
MSCI Emerging Markets Index
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.
MSCI EAFE Index
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.
Bloomberg US Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Examples are for illustrative purposes only. All investing involves risk of loss including the possible loss of all amounts invested.
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