Oil prices fell to a three-month low and stock markets rallied after the announcement of a US-Iran peace deal, raising hopes that the Strait of Hormuz would soon reopen to commercial shipping. Brent crude dropped 5% to below $83 a barrel at the start of the new trading week, while wholesale gas prices in Europe fell 6%.
Trump Announces Deal
US President Donald Trump declared on Sunday that a peace deal with Iran was "now complete," despite recent Israeli airstrikes on Beirut that had threatened to derail the sensitive negotiations. In a social media post, Trump wrote: "I hereby fully authorize the toll free opening of the Strait of Hormuz, and, simultaneously herewith, authorize the immediate removal of the United States Naval blockade. Ships of the World, start your engines. Let the oil flow!" He later clarified that the strait would open after the peace deal was signed on Friday, with oil flowing "for the Region, and the World!"
Details Remain Unclear
Many details of the agreement are still unclear, including the exact timing of the reopening, who will oversee safe passage, and whether any conditions will apply. Iranian authorities have indicated a 60-day negotiating period for a final deal addressing wider issues such as Tehran's nuclear programme and sanctions relief.
Oil Price Decline
The benchmark international oil price extended falls recorded on Friday to just over $82 a barrel, its lowest since early March. Brent crude was near $73 at the outbreak of the war in late February. The price began tumbling last week from $93 a barrel on Thursday to close at $87.50 on Friday after Trump said he was close to a peace deal with Tehran.
Global Markets Rally
Global stock markets rallied on Monday. In Europe, the UK's FTSE 100 opened up 0.8% before easing to flat, while the French Cac 40 and German Dax rose over 1%. Shares in oil companies like BP and Shell fell sharply. In Asia, Japan's Nikkei and South Korea's Kospi jumped 5%, and China's CSI300 rose 1.9%.
US Military Involvement
Trump also claimed that the US military had been secretly helping to move millions of barrels of oil a day through the strait in recent weeks to ease global market pressure. Oil prices have remained lower than expected throughout the Iran war, which halted Gulf oil exports through the strait in early March, removing 20 million barrels a day from the market.
Supply and Demand Adjustments
Gulf producers have rerouted about 5 million barrels a day via pipelines to alternative export hubs, and an additional 2 million barrels a day may have been moved with US military help via "dark tankers." However, many ships remain stuck in the strait. The Japanese Shipowners' Association reported 38 Japanese-linked vessels stranded in the channel, awaiting more concrete information about the deal, expected to be signed in Switzerland by June 19.
Record emergency crude and fuel have been released by International Energy Agency members at a rate of about 2.5 million barrels a day. China has cut imports by about 4 million barrels a day to a decade low, drawing on record inventories. Global demand may have fallen by 3 to 4 million barrels a day as Asian refineries cut activity.
Analyst Outlook
Tony Sycamore, an analyst at IG, said countries would use the reopening to replenish stockpiles and strategic reserves, but noted that complex negotiations, especially on nuclear issues, make it "hard to see crude falling much further from here in the near term."
