The price of oil has tumbled back to levels not seen since before the Iran war, but the reprieve may be fragile: Tehran has ordered vessels in the Strait of Hormuz to turn back, challenging the International Maritime Organization's evacuation route.
Global benchmark Brent crude briefly dipped below $72.48 a barrel, the price on the day before the US and Israel launched attacks on Iran on 28 February, before edging up to $73.23. The Guardian reported a low of $72.24 on Thursday. Prices have fallen more than 20% this month.
“Oil price drops to pre-war levels while Iran orders ships in Strait of Hormuz to turn back, threatening fragile truce.”
The slide follows the signing of a Memorandum of Understanding between the US and Iran on 17 June, setting out a 60-day period for negotiations on Tehran's nuclear programme and other measures to end the war. Talks in Switzerland last weekend led to the US partially lifting sanctions on Iranian oil exports. Maritime intelligence firm Kpler said 284 vessels had crossed the strait since the deal was signed, though that remains well below the pre-conflict average of about 138 per day. Guardian data showed vessel traffic had doubled over the previous 24 hours to its highest level since late February.
Yet the FT reported that Iran had told ships to turn back, with at least four vessels changing course as Tehran challenged the IMO's evacuation route. "Markets are still watching the region closely, and any renewed tensions could quickly send oil higher again," said Pratibha Thaker, regional director of Middle East and Africa at the Economist Intelligence Unit.
Dimitris Maniatis, chief executive of maritime risk advisory firm Marisks, said there had been a "tremendous shift" with far more ships using the strait in recent days, but noted that only a limited number could cross a northern passageway with Iranian permission. The US navy has provided guidance for vessels to travel through a southern route safe from mines, he added. Hundreds of ships still appear to be waiting in the Gulf.
Ipek Ozkardeskaya, senior analyst at Swissquote, said news that vessels were now transiting with satellite signals switched on helped push down prices, along with "strategic inventory releases, a collapse in demand from top buyer China and a substantial number of tankers quietly leaving the Persian Gulf 'dark'."
The falling oil price has eased fears of another inflationary shock. Stock markets on both sides of the Atlantic rose, with the pan-European Stoxx 600 and the Dow Jones hitting record highs. Bank of England governor Andrew Bailey welcomed the easing tensions. "It does look like a truce has broken out," he told the Shetland Times. "What's interesting is that, particularly this week, there's quite a sharp fall in energy prices."
For UK drivers, the RAC said petrol was likely to fall below 150p a litre in the coming days, making it the cheapest in three months. Diesel should fall back below 160p. "We urge retailers to pass on the savings they're benefitting on the wholesale market to drivers straightaway," said RAC spokesperson Simon Williams.
But the gains remain precarious. Susannah Streeter, chief investment strategist at Wealth Club, said: "Fears of a long-lasting global energy crunch induced by the Iran conflict are slinking away." Whether they slink back depends on how many vessels heed Tehran's latest orders.