Oil prices experienced a decline and stock markets saw an upswing following President Donald Trump’s announcement that the conflict with Iran could reach a resolution, potentially reopening the Strait of Hormuz to all traffic, contingent upon Tehran reaching an agreement with Washington. Trump conveyed via social media that if Iran adheres to the previously agreed terms, the conflict, dubbed “Epic Fury,” would conclude, and the current blockade would permit unrestricted passage through the Hormuz Strait, benefiting all, including Iran. However, he warned that failure to reach a deal would result in intensified military action.
This development occurred after Trump revealed a temporary halt to the “Project Freedom” initiative, which was aimed at escorting ships through the strategically important strait, responsible for about 20% of the world’s oil supply. Iran’s blockade of the strait since late February has precipitated a global energy crisis. While pausing the operation to finalize negotiations with Iran, Trump maintained that the blockade of Iranian ports would persist. In response, the Iranian Revolutionary Guards’ Navy announced that safe passage through the strait would be assured with the cessation of U.S. threats and the introduction of new protocols.
Reacting to the news, Brent crude oil, which had surged by 6% earlier in the week due to escalating tensions in the Middle East, plummeted by 11% to $97 per barrel, marking its first drop below the $100 threshold since April 22. Similarly, wholesale gas prices saw a decline, with the British June contract falling 6.3% to 107.8p a therm. The prospect of improved international travel prospects led to a rise in airline stocks. Initially, the crude oil price was already decreasing on Wednesday morning, but the drop accelerated following reports that the U.S. administration was nearing a preliminary memorandum of understanding with Iran to end the conflict, as reported by unnamed sources close to the negotiations.
Despite the initial dip, oil prices later regained some ground, trading down 7.3% at $101.83 a barrel, as Iran dismissed the U.S. proposal as an “American wishlist” rather than a concrete plan. The Iranian Guards’ statement did not elaborate on the specific measures for ensuring safe passage but expressed gratitude to shipowners and captains for adhering to Iranian regulations while navigating the strait. Brent crude had previously reached $126 a barrel the prior week, its peak since 2022, following Trump’s comments that the U.S. blockade of Iranian ports might extend for several months amid stalled peace talks.
European stock markets responded positively to the news. The UK’s FTSE 100 saw a 2% increase, France’s Cac 40 rose by 3%, and Germany’s Dax climbed 2.1%. Additionally, the MSCI All-Country World Index recorded a 1.6% rise to a new high, with similar benchmarks in emerging markets and broad Asia Pacific shares outside Japan, witnessing a 2.5% increase.