Oil prices fall and shares jump after US-Iran deal announced
"Global markets react to surprise announcement, but uncertainty lingers. Oil prices plummet as investors await details."
US President Donald Trump and Iran's government have agreed a framework deal to end the war. The agreement, announced on Monday, will see the reopening of the key Strait of Hormuz shipping route, a crucial waterway through which around 20% of the world's oil and liquefied natural gas (LNG) normally passes.
The news sent oil prices tumbling, with Brent crude, the global oil benchmark, dropping 4.7% to $83.24 (£61.94) a barrel. The fall in oil prices was mirrored by a surge in shares, with Asian stock markets jumping in reaction to the deal. Japan's Nikkei 225 share index closed 5% higher, while the Kospi in South Korea ended up 5.2%. In Europe, both Germany's Dax and France's Cac 40 indexes were up by about 1.7% and in London the FTSE 100 rose 0.6%.
The deal was finalized after months of mediation by Pakistan, which has been working to broker a peace agreement between the US and Iran. Iran's deputy foreign minister Kazem Gharibabadi confirmed the agreement in a phone call on state TV, while Trump posted on social media "let the oil flow!". An official signing ceremony is set to be held on Friday, 19 June in Switzerland.
The agreement marks a significant turning point in the conflict, which began on 28 February when the US and Israel launched airstrikes on Iran. The conflict has had a major impact on global energy markets, with prices often rising or falling sharply in response to developments in the war. Brent crude, which was trading at around $70 a barrel before the conflict started, peaked at about $120 during the war.
However, energy market experts have warned that the movement of oil through the Strait of Hormuz is unlikely to immediately return to pre-war levels. Andrew Lipow from consulting company Lipow Oil Associates said mines would first need to be cleared from the waterway, which could take from a few weeks to up to six months. He also said there is a large backlog of tankers waiting to use the waterway and that restarting oil production and getting the loading of ships back to normal levels could take weeks.
Admiral Mark Montgomery, a retired US Navy rear admiral and senior fellow at the Foundation for the Defence of Democracies, told the BBC's Today programme that getting back to normal would not be "an overnight thing". "I would say that's going to take a month or 45 days to kind of fully get till you're at a normal pumping balance, and vessels moving in and out smoothly," he said.
The lack of detail on what has been agreed is also likely to inject unease and uncertainty into the market, according to Vandana Hari from energy markets analysis firm Vanda Insights. This could mean a week of uncertainty and volatility for the oil market, she added. The region was hit particularly hard by higher energy prices as it is heavily reliant on the Middle East for its oil and LNG supplies.
The deal has significant implications for the global economy, with the potential to reduce inflation and boost economic growth. However, the impact of the deal will depend on the details of the agreement and how quickly the Strait of Hormuz is reopened. The agreement also marks a significant diplomatic victory for Pakistan, which has been working to broker a peace agreement between the US and Iran.
In the coming weeks, investors will be closely watching the situation in the Strait of Hormuz and the impact of the deal on global energy markets. The deal has the potential to reduce tensions in the region and boost economic growth, but the lack of detail on what has been agreed is likely to inject unease and uncertainty into the market. As the situation continues to unfold, one thing is clear: the agreement between the US and Iran has the potential to have a major impact on the global economy and energy markets.
