After 107 days of war, the United States and Iran have agreed to a framework aimed at keeping the ceasefire in place for another 60 days while both sides try to resolve the biggest issue left on the table, Iran’s nuclear program. 

The agreement, expected to be formally signed in Switzerland on Friday, is being seen as the biggest diplomatic breakthrough since the conflict began. It could also help reopen the Strait of Hormuz.

But while the deal eases tensions for now, several challenges have been pushed into a new round of negotiations.

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Iran-US peace deal: What is in the agreement? 

The memorandum of understanding extends the ceasefire and lays out a roadmap for talks over Iran’s nuclear activities and US sanctions.

  • Under the framework, military operations across all fronts, including in Lebanon, are set to end. The United States will remove its naval blockade, while Iran is expected to reopen the Strait of Hormuz, according to Trump.
  • Pakistan Prime Minister Shehbaz Sharif, whose government helped mediate the talks along with Qatar, announced the agreement on Sunday. “Both sides have declared the immediate and permanent termination of military operations on all fronts, including in Lebanon,” Sharif said. 
  • Iran’s Supreme National Security Council later confirmed that the agreement had been finalised and said negotiations on a broader peace accord would begin after both sides implement their commitments. 

Strait of Hormuz reopening may take time 

  • One of the most important parts of the agreement is the planned reopening of the Strait of Hormuz. Before the war, roughly one-fifth of global oil and LNG supplies passed through the waterway. Reopening it could ease pressure on global energy markets and help stabilise shipping routes.
  • However, officials have warned that a full return to normal traffic may not happen overnight. Mines may need to be cleared, damaged infrastructure repaired and security arrangements put in place before shipping volumes return to pre-war levels. 
  • Trump said the agreement would ensure that the strait remains “permanently toll-free.”
  • In a social media post announcing the deal, he wrote: “The Deal with the Islamic Republic of Iran is now complete. Congratulations to all! I hereby fully authorise the toll-free opening of the Strait of Hormuz, and, simultaneously herewith, authorise the immediate removal of the United States Naval blockade. Ships of the World, start your engines. Let the oil flow!”
  • Trump said the strait would reopen after the agreement is signed on Friday, saying the delay was needed “for purposes of mine removal.”

In a Truth Social post, Trump declared: “The Deal with the Islamic Republic of Iran is now complete. Congratulations to all! I hereby fully authorise the toll-free opening of the Strait of Hormuz, and, simultaneously herewith, authorise the immediate removal of the United States Naval blockade. Ships of the World, start your engines.”

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The nuclear dispute remains unresolved 

  • While the agreement marks progress, it does not settle the dispute over Iran’s nuclear program. Instead, the two sides have given themselves 60 days to negotiate what happens to Iran’s uranium enrichment activities and its stockpile of highly enriched uranium.
  • The United States is expected to discuss sanctions relief and access to frozen Iranian funds, while Iran will negotiate over limits and monitoring of its nuclear program.
  • The goal is to reach a technical agreement on how Iran’s enriched uranium will be handled and how future nuclear activities will be monitored. 

Tehran pushes different versions of the agreement 

The largest gap between the various drafts involved economic benefits for Iran.

  • One version reviewed by Bloomberg stated that the United States and its regional partners would create a reconstruction and economic development program for Iran worth at least $300 billion if a final agreement is reached.
  • Under that proposal, funding would become part of a broader peace settlement and help rebuild Iran’s economy after months of conflict.
  • Another version, reported by Reuters and attributed to an Iranian official, said the United States would allow the release of $25 billion in frozen Iranian assets.
  • Iranian media added another condition. On Friday, the semi-official Mehr news agency reported that Tehran wanted half of its frozen funds released, oil sanctions suspended, and the US naval blockade lifted before final negotiations on a permanent agreement could even begin.

The draft also offers immediate economic incentives. Washington would issue Treasury Department waivers allowing Iran to export crude oil, petrochemicals and related products.The waivers would also cover banking transactions, insurance and transportation services connected to those exports. In addition, the United States would begin releasing Iranian funds and assets that have been frozen or restricted. The amount released would depend on progress made during negotiations toward a final agreement, according to Fortune.

Oil prices slide after US and Iran sign peace deal

Financial markets responded quickly to the news. Oil prices dropped sharply as traders bet that shipping through the Strait of Hormuz could soon return to normal. Brent crude fell about 4% to around $84 a barrel, while US benchmark crude dropped to roughly $81.

Stock futures also moved higher, with futures tied to the S&P 500 rising nearly 1%. Gasoline prices in the United States edged lower, though they remain quite higher than before the conflict began.

Pakistan announces breakthrough after mediation efforts

Pakistan Prime Minister Shehbaz Sharif announced that the United States and Iran have reached a peace agreement following intensive negotiations, with both sides agreeing to an immediate and permanent end to military operations on all fronts, including in Lebanon. Sharif said the deal will be formally signed in Switzerland on June 19 and thanked both countries for their commitment to a diplomatic solution. He also praised Qatar for its mediation role and acknowledged the contributions of Saudi Arabia and Türkiye in helping move the talks forward.

Last-minute tensions nearly derailed talks 

Hours before the agreement was expected to be finalised, Israel launched strikes on Hezbollah targets in Beirut. The attacks angered Tehran and raised fears that the talks could collapse.

According to US and Israeli officials, Iran even made preparations for a retaliatory attack on Israel. US negotiators, working with Qatari and Pakistani mediators, rushed to prevent a military escalation that could have destroyed the agreement. In the end, Iranian officials decided not to proceed with an attack, and negotiations continued.

Formal signing expected in Geneva 

Iranian officials say Foreign Minister Abbas Araghchi and lead negotiator Gen. Mohammad Bagher Ghalibaf will travel to Geneva for the signing ceremony.

Vice President JD Vance is expected to represent the United States.

If the meeting takes place as planned, it would mark the highest-level direct engagement between Tehran and Washington in 47 years.

Iranian officials also say the agreement contains language stating that both countries respect each other’s sovereignty and will not interfere in one another’s internal affairs. 

Europe signals sanctions relief if Iran follows through on nuclear commitments

The United Kingdom, France, Germany and Italy said they are prepared to lift sanctions on Iran if Tehran follows through on commitments related to its nuclear program.

In a joint statement issued after the breakthrough between Washington and Tehran, the four countries said they were ready to work with the United States, Iran and the UN’s nuclear watchdog to ensure Iran does not develop a nuclear weapon.

“Iran must never acquire a nuclear weapon. We stand ready to work with the US, Iran and the IAEA to this end,” the statement said.