Libby Cantrill, head of public policy at PIMCO, examines the fragile but politically significant memorandum of understanding between the US and Iran, arguing that while it may reduce the immediate risk of escalation, major questions remain over enforcement, shipping through the Strait of Hormuz and Iran’s nuclear programme.
President Donald Trump is in the French Alps for the G7 annual leaders’ summit this week, where the recent memorandum of understanding (MOU) between the U.S. and Iran will be a focus. While details of the MOU have not yet been released, the agreement reflects a fragile, but welcome truce politically for President Trump, whose approval ratings have dropped to roughly 40%, the lowest of his second term as the price of gas has increased.
The MOU is reported to include a 60-day extension of the existing cease fire to negotiate the future of Iran’s nuclear program, with the aspiration for Iran to commit to a 15- or 20-year cessation of nuclear enrichment and an abolishment of its uranium stockpiles. It also reportedly includes an immediate lifting of the naval blockade and reopening of the Strait of Hormuz for 60 days toll-free, although the future of tolling could be a major sticking point in negotiations.
It has been described by some analysts as the “end of the beginning” rather than a complete end to the conflict, punting on many of the more difficult issues. Even those who are more optimistic think a durable deal will take longer than 60 days.
Practically, it is expected to take a while before ships can pass through the Strait comfortably, given mines and other risks, which could keep some premium in the oil market for months, if not longer.
Looking through a political lens, the MOU, assuming it gets signed later this week in Switzerland, will be a welcome relief, reducing the tail risk of greater conflict for the foreseeable future and potentially providing some support for Trump’s approval ratings.
However, given that Iran has turned a theoretical source of leverage — closing the Strait — into a real one, and given that sanctions relief is likely to be a component of any deal, the strategic and political value of the conflict will come down to what Iran’s nuclear program ultimately looks like. Regardless, the premium in the oil market could very well stick around for the foreseeable future.
AI Restrictions
As the market continues to focus on the AI story, the White House’s recent action to impose export controls on Anthropic’s newly released LLM models — Mythos 5 and Fable 5 — is likely something we will see more of, not less of, regardless of who is in the White House.
The politics of AI (everything from the data centers that power them to the fear that AI is coming for everyone’s jobs) are not great, so policymakers arguably have a long political runway to impose restrictions voluntarily. Given that AI is seemingly the new boogieman, policymakers may be forced to do so politically, even if grudgingly. At the very least, absent broader federal regulation, many states are moving forward with AI regulation.
Policymakers don’t necessarily make great policy when they do so out of fear, political pressure, or a combination of the two, and the rapid development of AI has all the characteristics of an issue that could give way to rash, blunt, or generally unthoughtful policy.
While we do not expect Congress to legislate on AI anytime soon, we may see more unilateral restrictions from the Trump Administration. Meanwhile, the states seem committed to moving forward, increasing the chances we see a messy patchwork of regulation across the country.
