Both Hands on the Wheel — Addendum

Michael Grant

A Fragile Yet Decisive Truce

The fortnight since our April 1st commentary has delivered on the critical juncture we identified for the Iranian conflict: a two-week ceasefire was announced, brokered through Pakistani mediation. Equity markets have responded with the relief that the balance of probabilities warranted because both parties are now prioritizing a political solution. For US equities, the buy signal is more tactical, less strategic: none of this alters the broader framework for 2026.

This ceasefire deserves careful interpretation. The Trump administration issued an ultimatum with a precise deadline and began acting on it eight hours early—striking petrochemical sites, bridges and rail lines before the clock expired. For the first time in the long history of US ultimatums to Tehran, the threat was demonstrably credible. Iran deployed civilians and social media figures to shield installations. What followed was not negotiation but controlled escalatory descent—coercion, not diplomacy.

For the Western media, this confrontation has produced a draw, not a victory, and draws can be unstable. Trump's problem is that military force could not be applied without genuine economic disruption. He may have miscalculated¹ that Iran could be brought to heel while domestic opinion remained quiescent. Instead, much of the establishment (and in Europe especially) has treated the conflict as an instrument to damage Trump² rather than a legitimate security operation. Neutral reporting has proved impossible.

The information environment is as contested as the military one. Iran published its 10-point negotiating position in Persian in terms notably different from the English version circulated to international audiences—and the opposition media translated their preferred version. This episode amplifies the trans-Atlantic divergence already visible before the conflict and deepens fissures within Europe. And yet, all of this has reinforced America's comparative advantage as the only credible security guarantor for states facing genuine external threats.

America has three non-negotiable demands that define the boundary of any agreement—permanent elimination of nuclear capability, dissolution of the proxy network and constraints on ballistic missiles. Paradoxically, the nuclear question is the most tractable: Iran’s enrichment infrastructure has been degraded, and Tehran has learned that nuclear capability is not the deterrent it once hoped. Nuclear concessions will be forthcoming, but Iran’s leadership is acutely aware of what this would hand Trump politically, implying the most deliberate procrastination on precisely the most tractable issue.

The proxy question is largely resolved by events. Hezbollah has been systematically decapitated—forty-one senior leaders assassinated since the truce began. Syria has been lost. The Houthis are silent. The Iraqi militias, enriched by years of relative peace, have little appetite for sacrifice. A regime that once commanded a coherent arc of regional influence is now administering its remnants. Iran entered this conflict with a proxy network constituting its primary strategic asset outside its own borders; it will exit with something considerably diminished.

The ballistic missile demand is harder—this remains Iran's existential insurance. Iran demonstrated it could strike Tel Aviv and the Gulf capitals with meaningful effect; surrendering that is a different order of concession from the nuclear question. Trump’s impatience for a deal may prove the decisive variable. His instinct that a residual missile threat keeps the Gulf states permanently anchored to American protection is not without logic and may ultimately shape the terms.

The Strait of Hormuz is dominating media coverage, but this belongs in a different analytical category. The war was not initiated over the Strait—it was open on the day hostilities began. Oman’s Foreign Minister has clarified that no tariff regime will be imposed on transit; in his formulation, the Strait is a geographical fact, not a human construct. The American calculus is that reopening follows automatically from resolution of the substantive demands. This reflects the reality that the Strait's leverage is a wasting asset³ for Iran.

China's role has been revealing. Beijing exercised its Security Council veto to shield Iran from a resolution that might have authorized an international coalition—a scored point in the great power competition. But its support for Iran has been conspicuous by its absence: negligible air defense capability supplied, no bilateral meetings convened, no material assistance once the strikes began. The Gulf states have taken note⁴ and are signaling that their security relationships with Washington will deepen, not weaken.

Iran is a new country since February 27. The former Supreme Leader has not been buried—an Islamic impossibility that speaks to the regime's paralysis.⁵ His successor governs from an undisclosed location. The IRGC⁶ and the conventional government are pulling in opposite directions; the former committed to resistance, the latter seeking an off-ramp. The Islamabad talks require only that both sides sustain an ambiguity that each can present as victory. The parallel with Saddam after Kuwait is not lost.⁷

Iranian regime change in the Western liberal sense was always a political chimera. What is required—and what remains possible—is a shift in internal priorities much as the Mao-to-Deng transition reoriented Chinese society without displacing the regime. Some argue the Iranian political class has been hardened by the conflict, yet history suggests the opposite.⁸ The cessation of hostilities invariably surfaces internal discontent, and in Iran that discontent was already conspicuous.

Implications for Financial Markets

The relief rally that began on April 8 reflects the emergence of a political path—US coercion working and the media portrayal of a strategic draw providing Iran its necessary off-ramp. Prior to hostilities, the US demand for a shift in Iranian nuclear intent was rejected outright: “why should we negotiate away what you cannot take from us militarily?”⁹ Both sides escalated until Iran chose to descend the ladder. Talks are now the priority.

For today’s investment regime, this affair is a strategic amplifier. It amplifies trans-Atlantic divergence and the fragmentation of interests within Europe. Most consequentially, it amplifies America's comparative advantages of security and reinforces the investment case for defense and re-industrialization. These are not tactical themes of a passing crisis—they extend beyond any ceasefire and are consistent with the reflationary policy backdrop that defines this decade.

The stagflationary impulse does not reverse because negotiations have emerged. Higher oil prices are one component of the higher-for-longer regime for interest rates that preceded this conflict and will outlast it. The 10-year Treasury yield has not returned below 4.25% and we do not expect it to. The bond market remains the honest barometer of the cost surge embedded in the macro environment. The question is how this disruption registers in sequential economic data over coming quarters.

Of the three macro questions hanging over US equities—the turn in the credit cycle, the Iranian war and oil prices, and the AI narrative—the last remains decisive and has been integral to the bull move since late 2022. The saving grace is American earnings resilience and the substantial hedging that has accumulated across the technology sector. This distinguishes today from a conventional bear market, however uncomfortable the oscillations may prove.

Some of our interpretation is colored by the view that this conflict marks the beginning of the end of the Iranian regime as currently constituted—but the transition will take time and likely entail the construction of alternative oil supply channels. From that point of view, Trump may not receive the political benefit, and in that narrow sense he has miscalculated. Of course, history has a longer and sometimes kinder memory than the electoral cycle.

For investors, the sequencing—truce, negotiation, renewed pressure and eventual sanctions relief—will be measured in months, not weeks. The consequence is a further period of disruption and volatility: large swings within a consolidation range that encompasses both upside and downside surprises. This is consistent with the broader pattern outlined in our January outlook; the midterm elections remain the probable catalyst for a more constructive investment posture. Both hands on the wheel.