Oil prices experienced a significant drop and stock markets saw gains following President Donald Trump’s announcement suggesting an end to the conflict with Iran, contingent upon Tehran’s agreement to a deal with Washington. Trump assured that the Strait of Hormuz, a vital passageway for global oil supply, would be accessible to all, including Iran, if the terms were met. However, he warned that failure to reach an agreement would result in intensified military actions.
The President’s comments came amid his decision to temporarily halt “Project Freedom,” a US operation escorting ships through the strait, which has been under Iranian blockade since February, causing a worldwide energy crisis. Trump emphasized that this pause was to secure a deal with Iran while maintaining the blockade of Iranian ports. Iran’s Revolutionary Guards’ Navy responded by asserting a commitment to safe passage through the strait, signaling potential de-escalation as US threats were perceived to be diminishing.
The developments led to a sharp decline in Brent crude oil prices, which fell 11% to $97 a barrel, marking its lowest point since April 22. This decline follows a 6% increase earlier in the week due to ongoing Middle East tensions. The situation also influenced wholesale gas prices, with the British June contract dropping 6.3% to 107.8p a therm. The positive outlook for international travel boosted airline stocks. The decline in crude prices accelerated after reports indicated the US and Iran were nearing a preliminary agreement to end hostilities, with discussions set to establish a framework for detailed nuclear talks.
Despite the initial drop, oil prices later recovered some ground, trading at $101.83 a barrel after Iran dismissed the potential agreement as an “American wishlist.” The Revolutionary Guards did not elaborate on new procedures for the strait but expressed gratitude to shipowners and captains for adhering to Iranian regulations during transit.
In response to these geopolitical developments, European stock markets rallied. The UK’s FTSE 100 index increased by 2%, France’s Cac 40 rose by 3%, and Germany’s Dax saw a 2.1% uptick. Meanwhile, MSCI’s All-Country World Index climbed 1.6% to a new record, alongside similar gains in its emerging markets benchmark and its Asia Pacific shares index outside Japan, which rose by 2.5%.