Oil prices experienced a sharp decline after the announcement of a peace agreement between the US and Iran. Following the news that the Strait of Hormuz is set to reopen, prices immediately dropped during early Asian trading. President Donald Trump’s declaration that ‘oil will flow’ further contributed to the decrease in prices.
Brent crude, the global oil benchmark, saw a 3.8% decrease, reaching $84.02 per barrel, while US-traded oil dropped by 4.1% to $81.40. Pakistan confirmed that the formal signing of the agreement will take place in Switzerland on Friday.
Although the exact terms of the deal have yet to be confirmed by both countries, Iranian state media has outlined a 14-point draft memorandum of understanding. This includes the lifting of the US naval blockade within 30 days and the reopening of the Strait of Hormuz within the same timeframe under Iranian supervision.
The strait had been effectively closed since the US and Israel conducted airstrikes on Iran on February 28, impacting the transportation of approximately 20% of the world’s oil and gas supplies.
Following the agreement, President Trump made posts on Truth Social, highlighting the achievement of peace and security in the region. He emphasized being the first president to successfully negotiate peace with Iran, stating that ‘oil will flow’ globally once again.
In an interview with the New York Times, President Trump assured that the agreement guarantees the Strait of Hormuz will remain toll-free indefinitely. Despite the ongoing conflict, petrol prices have been on the rise, reaching an average of 158.52p per liter in May, according to the RAC.
Despite the deal, investment bank JP Morgan previously predicted that global oil prices would likely stay in the “low $100s” for a significant part of the year, even after the reopening of the Strait of Hormuz. Normalizing oil supplies in the region is expected to take some time.