Oil prices fell sharply on Monday after Donald Trump announced a peace agreement with Iran that could pave the way for the reopening of the Strait of Hormuz, easing fears of prolonged disruption to one of the world’s most important energy chokepoints.
Brent crude, the international benchmark, dropped more than 5 per cent to just above $82 a barrel, its lowest level in more than three months, as traders priced in the prospect of restored flows through the narrow waterway through which roughly a fifth of global oil and gas shipments typically pass.
The move triggered a broader rally across global equity markets, with investors welcoming the prospect of reduced geopolitical risk in the Middle East after more than 100 days of conflict that had rattled energy markets and pushed inflation expectations higher.
In London, the FTSE 100 rose nearly 100 points shortly after the open before settling 0.6 per cent higher at 10,536.46. Continental European indices also advanced, with France’s CAC 40 and Germany’s DAX both up around 1.7 per cent in early trading.
The agreement, which Trump said would be formally signed later this week, comes after a period of escalating military tensions that had effectively curtailed shipping through the Strait of Hormuz since late February. The blockade sent crude prices surging earlier in the year, at one point reaching as high as $120 a barrel, and fed through into higher wholesale energy costs globally.
However, analysts cautioned that significant uncertainty remains over the durability and implementation of the deal. Key operational details, including verification mechanisms and the sequencing of sanctions relief, are still to be finalised.
There are also questions over how quickly flows through the Strait can normalise, even if the agreement holds. Damage to regional energy infrastructure during the conflict is expected to require extensive repairs, while shipping insurers and logistics firms may remain cautious until a sustained period of stability is established.
The Strait of Hormuz, a narrow passage between the Persian Gulf and the Gulf of Oman, is one of the world’s most strategically sensitive shipping lanes. Its partial closure during the conflict has underscored the fragility of global energy supply chains and contributed to renewed volatility in oil and gas markets.
Despite Monday’s sharp decline, traders said prices could remain sensitive to any signs of diplomatic breakdown, given the scale of infrastructure disruption and the unresolved nature of broader US-Iran tensions.
Susannah Streeter, Chief Investment Strategist, Wealth Club said: ”Investors are buzzing with relief given a longer-term solution to the Middle East crisis seems to have been clinched which should ease the energy crunch.
After months of dashed hopes, a more secure deal appears to have been struck between the US, Iran and Israel, which should enable oil, gas and other vital supplies to flow freely through the Strait of Hormuz. Stocks in Asia surged higher, and European markets are poised for a bounce, as companies finally eye respite from soaring costs.
Brent crude which has been a gauge of tensions has fallen back sharply to trade at $83 a barrel. UK gas prices have also dropped sharply, down 6%. With energy prices falling back, inflationary pressures should start to ease off. However, prices are still elevated, with crude some 16% higher compared to just before the war broke out and gas prices still more than 30% higher. It’s partly because some nervousness remains given that we’ve had plenty of false starts to this peace process. It also reflects the expected slower start to the resumption of energy flows, given the damage wreaked to facilities across the Gulf region which will take many months to repair.
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