Light Crude Oil Futures (WTI) dropping sharply by 5.53%, falling to a current price of 91.26, while ICE Brent Futures are experiencing an even steeper decline, shedding 8.05% to trade at a current price of 95.21.
The decline in oil prices comes amid hope that a deal to end the war in the Middle East between the United States and Iran is nearing completion.
However, details revealed by reports about the potential substance of this agreement suggest that it could be fragile, just like previous agreements or negotiation rounds, which could lead to a renewed rise in oil prices.
Axios reported, citing officials, on the details of the agreement being negotiated, which include reopening the Strait of Hormuz, lifting economic sanctions, and lifting restrictions on Iranian assets and funds.
In addition, the agreement stipulates ending the war with Iran as well as ending the war between Lebanon and Israel. As for the nuclear program, under this agreement, Iran has given a “verbal commitments about the scope of the concessions it’s willing to make on suspending enrichment and giving up the nuclear material”, according to Axios.
In other words, the current agreement, which is causing optimism and has led to lower oil prices, is nothing more than negotiations over negotiations for a future nuclear deal. Iran has only offered a verbal promise to negotiate, not a commitment to make substantial concessions. Furthermore, the details revealed by Axios do not address the missile program, drones, or support for external groups in the region at all.
We have previously mentioned that any agreement that does not clearly stipulate the dismantling of Iran’s nuclear program, its ballistic missile program, or even its drone program will be pointless. This is especially true because it contradicts the security interests of Israel and would also represent a defeat for the United States. Indeed, this agreement has already triggered a wave of widespread criticism from hawkish Republicans, war supporters, and even traditional political opponents among the Democrats. It is seen as a military defeat for the United States, given its failure to achieve its major goals, and represents nothing more than a step back to the previous Obama agreement. As a result, Trump has only caused disruption in the global energy market, portraying Iran as a regional superpower that controls 20% of the world’s oil supply.
Based on this narrative, I foresee a short-term possibility of renewed fighting or at least maintaining the current state of no peace and no war for an extended period. This scenario would keep the Strait largely closed to oil tanker traffic and support the continued rise in oil prices for a significant duration. The most optimistic scenario, in my view, is that Trump will try to force this agreement on all parties in the region and then withdraw, preparing to pursue strategic victories elsewhere, whether in Cuba or Greenland.
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