Oil prices have tumbled to a three-month low and global stock markets surged after Donald Trump confirmed a framework peace deal with Iran that will see the reopening of the Strait of Hormuz – the waterway through which 20% of the world’s oil normally passes.
Brent crude dropped more than 5% to $82.84 a barrel in early trading, later slipping below $80, as wholesale gas prices also fell about 6%. The slump comes after more than 100 days of the greatest recorded disruption to global energy supplies, triggered when the US and Israel launched airstrikes on Iran on 28 February.
“Oil prices plunge to three-month low and global markets rally after US and Iran agree to reopen Strait of Hormuz.”
The deal was announced hours after Trump posted on social media “let the oil flow!”. Iran’s deputy foreign minister Kazem Gharibabadi confirmed in a phone call on state TV that a deal with the US had been finalised. Pakistan, which has been mediating, said an official signing ceremony would be held on Friday, 19 June in Switzerland.
Trump said the agreement would lead to the reopening of the Strait of Hormuz “for purposes of mine removal” – a process that could take up to seven weeks during a 60-day negotiation period over the terms of Iran’s nuclear phaseout.
Asian stock markets led the rally, with Japan’s Nikkei 225 closing 5% higher and South Korea’s Kospi ending up 5.2%. Europe followed: Germany’s Dax rose 1.2%, France’s Cac 40 added 0.7%, but London’s FTSE 100 slipped 0.4% as shares in energy giants BP and Shell dropped on the lower oil price. In the US, the Dow Jones climbed 1%, the S&P 500 gained 1.6%, and the tech-heavy Nasdaq – buoyed by the blockbuster debut of Elon Musk’s SpaceX on Friday – rose 2.5%.
Despite the sharp falls, analysts warned that a return to pre-crisis normality is months away. Vandana Hari from energy markets analysis firm Vanda Insights said a lack of detail on what has been agreed was “likely to inject unease and uncertainty into the market”, potentially causing a week of volatility. Bjarne Schieldrop, chief commodities analyst at SEB, said a gradual reopening is “tactically preferable” for Iran to prevent governments from restocking crude stores too quickly and to maintain Tehran’s political leverage.
Schieldrop also noted that Trump “has to sell this at home as a victory” ahead of midterm elections, with lower gasoline prices potentially helping Republicans. But market observers believe oil prices may remain between $80 and $90 a barrel for the rest of the year as buyers race to refill depleted emergency crude stockpiles. The international benchmark traded at around $70 before the conflict and peaked at $120 during the war.
Brent crude, which had fallen to lows of $82 a barrel, remains well above last year’s average of $69. The deal emerged weeks before the oil market was forecast to enter a “red zone” of soaring summer demand colliding with fast-depleting stockpiles. It could be late July before minesweepers can assure safe passage through the strait, leaving a question mark over how quickly the world’s energy markets can truly exhale.