There Are Still 4 Iran-war Issues To Be Addressed Before The Economy Can Declare 'all-clear,' Mohamed El-erian Says

• Trump said a draft peace agreement has been reached and is on track to be signed by the US and Iran.
• The global economy isn't out of the woods yet, though, top economist Mohamed El-Erian said.
• He flagged four key issues that could prolong or even derail the global economy's recovery.

The stock market saw a relief rally and Brent oil prices plunged after Donald Trump announced a deal with Iran.

Yet, top economist Mohamed El-Erian warned that it's too early to declare "all clear" for the global economy and markets.

"Lasting relief for the global economy will depend on how the US and Iran navigate the profound operational complexities that their agreement entails," the economist wrote.

"The next few weeks will be dominated by a step-by-step evaluation of whether renewed diplomacy can survive contact with structural realities," he added.

Trump announced a tentative deal with Iran on Sunday and said it will be signed as soon as Thursday.

Investors have been effectively looking through the conflict in the Middle East since the end of March, but the deal announcement fueled further gains in equities alongside a downturn in bond yields and oil prices.

The US and Iran need to clarify four things that threaten to derail the global economic progress from the Iran war, El-Erian said.

Here are the four issues he flagged.

The devil is in the unclear details

The specifics of the memorandum of understanding aren't clear, but Trump signaled the reopening of the Strait of Hormuz and Iran giving up any nuclear capabilities.

El-Erian said that the US and Iran face the tall task of transitioning the memorandum into a detailed and permanent agreement.

US Vice President JD Vance also signaled that "a lot" of the details of the deal are yet to be negotiated.

"There are a lot of very important details to figure out," Vance said in an interview with CNBC, where he also said the US has "all the cards."

The full text of the memorandum of understanding is yet to be released, but there has been reports out of Bloomberg and CNN of a 14-point draft agreement.

Some of the key components reported are a complete ceasefire, including in Lebanon, a 60-day period to negotiate and reach a final agreement that is open to mutual extension, an end to the Strait of Hormuz blockade, and commitments by Iran to never produce a nuclear weapon, among other points.

Another aspect of the reported 14-point draft is that the US and regional partners finance a $300 billion reconstruction fund. Trump has pushed back, saying the report is "false." Later, he told reporters that Iran will only get the $300 billion fund, only if Iran is "doing things right."

Trump also clarified the current deal is not final, saying, "It's a memorandum of understanding, and if I don't like it we'll go back to shooting at them, dropping bombs on their head."

The wildcard of Israel's cooperation

"International and regional actors' reaction could either solidify or sabotage the fragile peace," El-Erian said.

First, US allies in the Middle East and Europe are broadly eager to resolve the historic oil shock and are expected to cooperate to achieve peace in the region.

The second actor is Israel. Israel's strikes on Lebanon have been a key sticking point in past ceasefire agreements between the US and Iran.

Since the onset of the US and Israel war against Iran, reports of Israel striking Lebanon have continued despite the US-brokered ceasefire agreement and the memorandum between the US and Iran.

Trump himself called out recent attacks from Israel on Lebanon. At a Wednesday G7 conference, Trump said Israel has been a "good partner," but that "they could do a much better job with Hezbollah."

Signals from Israel that a ceasefire will be upheld could help the global economy move forward from the conflict.

The timeline to normal

A peace agreement is an important step towards the global economy moving back to a pre-war normal, but it will take time even after a deal is agreed to.

"The speed of normalization will be critical for restoring global economic health," El-Erian said.

"Reopening a chokepoint like the Strait of Hormuz is not as simple as flipping a switch," he noted. "Adjusting shipping insurance rates, carrying out de-mining operations, and ramping up energy production all takes time."

Experts said that it could take weeks to months for flows through the Strait of Hormuz to near pre-war levels.

Weighing lasting 'economic scarring'

Even with a final agreement, the "economic scarring" is likely to persist, El-Erian said.

"The ceasefire does not automatically reverse adverse effects such as the hit to global costs, some of which have yet to materialize (particularly in the food sector)," the economist wrote.

"But these shocks must be weighed against the resilience-building measures that countries and companies were forced to pursue—from establishing alternative energy supply chains that bypass current chokepoints to placing a heavier logistical emphasis on precautionary inventories," he added.

The Federal Reserve will weigh the inflationary shocks driven by the war, the impacts of the deal, and how long it will take to return to pre-war levels.