Ongoing US-brokered talks between Israel and Lebanon produced a conditional ceasefire agreement in early June 2026, requiring Hezbollah’s withdrawal south of the Litani River and Lebanese army control of designated zones, with further sessions scheduled for late June. Hezbollah promptly rejected the terms, sustaining low-level clashes, while Lebanese officials have repeatedly stated that normalization lies outside the current agenda and would require broader Arab consensus. Internal Lebanese divisions, Hezbollah’s entrenched military presence, and Israeli demands for security guarantees continue to constrain diplomatic progress beyond security arrangements. Traders price these structural barriers and the absence of any normalization framework as the dominant factors behind the elevated probability assigned to no formal diplomatic relations by December 31, 2026.