Sunday’s memorandum of understanding between the US and Iran will come as a huge relief to a world weary of the 107-day conflict that roiled oil markets, threatened to push inflation higher, and cast a shadow over global growth and trade. Fingers crossed, the formal agreement scheduled to be signed in Geneva this Friday will pave the way for constructive negotiations and, ultimately, a durable peace.
Pakistan Prime Minister Shehbaz Sharif deserves credit for helping facilitate the breakthrough. With neither side willing to yield ground for much of the conflict, Islamabad’s role as mediator merits recognition. Equally important, countries across the globe — particularly in Europe and Asia — will welcome the prospect of the Strait of Hormuz reopening.
Nearly a fifth of the world’s oil and gas supplies pass through this narrow waterway, making it one of the most strategically important chokepoints in global trade. The announcement has already sent Brent crude prices below $84 a barrel, down over 5%, while equity markets across Asia have rallied sharply.
Yet optimism must be tempered with caution. The two sides remain divided on critical issues. Washington is seeking a commitment from Tehran that it will refrain from enriching uranium for at least the next two decades. That could prove a significant sticking point, if not a deal-breaker, as many experts doubt Iran will accept such restrictions.
Equally troubling are suggestions from President Donald Trump that military action could resume if a nuclear accord is not reached. Such rhetoric is unlikely to aid negotiations and may instead complicate an already fragile process. Iran, for its part, will seek meaningful sanctions relief and access to tens of billions of dollars in frozen oil revenues.
The coming weeks will reveal whether both sides are willing to make the compromises necessary for a lasting settlement.
For India, which has borne the brunt of the energy shock and faced renewed pressure on its macroeconomic fundamentals, an end to hostilities would bring significant relief.
The restoration of normal supplies of crude oil, liquefied petroleum gas, and natural gas should help moderate import costs and reduce pressure on the rupee, imported inflation, and the current account deficit.
Recent measures to attract foreign capital inflows — including incentives for dollar deposits and tax exemptions on sovereign bond investments — should further support the currency and strengthen the balance-of-payments position.
Trade with West Asia, disrupted by the conflict, is also likely to recover over the coming months.
Even so, the crisis has exposed several structural vulnerabilities in the Indian economy. The government must use this period of respite to strengthen resilience against future supply shocks.
Strategic petroleum reserves should be expanded further, even as sources of energy imports are diversified. India currently has storage capacity equivalent to roughly 74-75 days of net imports, but greater buffers would enhance energy security. Fertiliser pricing reforms also deserve consideration.
Rather than relying primarily on subsidies, the government should move towards direct benefit transfers to farmers, encouraging more efficient use while easing pressure on the fisc. Similarly, while the transition to electric vehicles is underway, charging infrastructure needs to expand much faster.
Finally, attracting long-term foreign capital will require regulatory certainty, fair bilateral investment arrangements, and a stable tax regime. The West Asian conflict has served as a reminder that external shocks can quickly expose domestic weaknesses. Addressing them is essential if India wants to achieve its full growth potential.