The US and Iran agree to a conditional ceasefire. What is happening now?

A temporary ceasefire between the US and Iran sparked widespread relief rallies across the property on Wednesday, but experts warned that any deal on a lasting peace would be complicated by a large trust deficit.

The cease-fire followed a flurry of diplomatic efforts led by Pakistan and came just hours before a deadline threatened by President Trump to wipe out all of Iranian civilization, temporarily pulling the region back from the brink of major military bombing.

After the armistice was announced, the price of crude oil fell to below $100 per barrel, but it remains far above the pre-war level of around $70 per barrel.

US President Donald Trump said the two-week ceasefire was conditional on the “full, immediate and safe opening” of the Strait of Hormuz, but Iranian officials said safe passage through the strait was “possible” subject to coordination with the military and “technical limitations.” The warning could give Iran leeway to define compliance on its own terms.

“This is an issue that could derail a ceasefire later this year,” said Matt Gertken, chief geopolitical strategist at BCA Research, warning that coordination requirements remain dangerously vague in previous statements by both sides.

With the U.S. midterm elections approaching and gas prices significantly higher than before the war, President Trump may temporarily accept Iran as a gatekeeper, but after the election U.S. national security officials will begin to press for a more permanent solution, Gartken said. “We expect fighting to break out later this year, if not later this month.”

Tehran also said its military would cease defensive operations if attacks on Iran ceased. Even after the ceasefire went into effect at 8pm ET on Tuesday, missiles were still fired from Iran towards Israel and several Gulf states.

Tuesday’s reprieve will give the two countries some time to reach a longer-term agreement to end a six-week war that has killed thousands and sparked a global energy crisis, with delegations from both countries scheduled to meet in Islamabad on Friday.

Iran is reportedly finalizing a joint maritime protocol with Oman to institutionalize the coordinated management of tanker traffic through the strait, which could potentially incorporate Iranian authority over the vital energy artery into a permanent bilateral agreement.

The ceasefire unites a group of parties with vastly divergent interests, and leaves questions as to whether restarting peace talks will yield meaningful results without reigniting tensions.

Pratibha Thakur, regional director for Africa and the Middle East at the Economist Intelligence Unit, described the ceasefire agreement as a “huge relief” but warned that a significant lack of trust on both sides would complicate future negotiations.

“I really want to emphasize that what we’re seeing now is a pause in the conflict, not any permanent solution,” Taker said Wednesday on CNBC’s “Europe Early Edition.”

“But while this is a great deal, it is a very fragile one. A ceasefire depends on Iran ceasing its military activities and fully reopening the Strait of Hormuz to commercial navigation,” Taker said.

“Importantly, there are deep trust deficits on both sides. From Washington’s perspective, there are longstanding concerns about Iran’s nuclear program. From Tehran’s side, there is deep skepticism about U.S. intentions, especially given past deal withdrawals and continued military presence and pressure.”

Israel agreed to halt the attacks, but urged the United States to force Iran to make deeper concessions, including handing over its enriched uranium stockpile. Iran has asked the United States to accept its uranium enrichment program and lift all sanctions on 10 conditions.

Michael Langham, emerging markets economist at Aberdeen Investments, said the ceasefire was likely to remain in place for some time given the economic cost to the global economy from the six-week conflict. “Parties with a stake in ending the conflict and reopening the strait will redouble their efforts to find a compromise,” he said.

Wrangham added that the damage to the global economy should prove manageable if the ceasefire holds and the Strait reopens. He added that the central bank could broadly return to its pre-conflict trajectory and that focus could shift from inflation to growth if commodity prices normalize quickly.

Jeff Yu, senior market strategist at BNY, said on CNBC’s “Squawk Box Asia” on Wednesday that while the ceasefire caused a rebound in relief in the market as a reassessment of the conflict progresses, investors will be looking for something more durable than a two-week hiatus.

“What the market starts to look ahead to is the first step towards further detente, and perhaps something more permanent,” he said, suggesting the disruption was extending beyond crude oil to commodities such as helium, which is important to semiconductor makers in South Korea and Taiwan.

Stocks surged across the region as Asian benchmarks and U.S. futures rose on growing optimism about a potential tipping point in the conflict that has roiled markets in recent weeks.

Josh Rubin, portfolio manager at Thornburg Investments, cautioned against reading early market reaction as a final verdict. Rubin said “the outlook remains low (and) there is limited predictability” over whether the ceasefire will hold, warning that tail risks remain if the Strait remains closed for another two to four months.

BCA Research’s Gertken said energy and commodity markets are likely to remain structurally high regardless of the outcome of the ceasefire, as governments stockpile and replenish in anticipation of a flare-up of conflict, and oil and gas prices remain well above pre-war levels even in a scenario where shipping resumes.

Mehran Kamrava, a government professor at Georgetown University in Qatar, said the two-week ceasefire shows there is “tremendous willpower” on both sides to end the war.

“It’s probably Israel that doesn’t want the war to end. And we see that Israel refuses to say that this ceasefire applies to Lebanon. So, yeah, I think the ceasefire will hold because neither the Trump administration nor the Iranians really want this war to continue,” Kamraba said on CNBC’s “Squawk Box Europe” on Wednesday.

Asked how the past 24 to 48 hours may have affected the way the United States is viewed by allies and adversaries around the world, Kamrava said some of President Trump’s statements have “sparked the world’s attention.”

“One of the things we have seen in the region is that a close alliance with the United States does not necessarily bring security. On the contrary, it creates adversaries and creates problems,” Kamrava said.

“So what we’ve seen in the last 48 to 24 hours is kind of a wake-up call to everyone, allies and adversaries alike, that President Trump is a very untrustworthy and really unpredictable person in the White House, especially given his very inflammatory and violent language on social media.”