Oil prices tumble over 5% as US and Iran agree to reopen Strait of Hormuz

Peace deal announced

On Sunday, 14 June, US President Donald Trump announced a peace agreement with Iran to end the conflict that began on 28 February with a US-Israeli offensive. The deal includes the immediate reopening of the Strait of Hormuz, through which about 20% of global oil passes. In exchange, the US will lift its naval blockade of Iranian ports. A formal memorandum of understanding is set to be signed on Friday, 19 June, in Switzerland, following weeks of back-channel negotiations mediated by Pakistan.

“The agreement with the Islamic Republic of Iran is concluded. Congratulations to all! I hereby fully authorize the unrestricted opening of the Strait of Hormuz and simultaneously authorize the immediate lifting of the United States naval blockade. Ships of the world, start your engines! Let the oil flow!”

Oil and gas markets react

Oil prices fell sharply on Monday, with Brent crude for August delivery dropping 4.67% to $83.27 per barrel, its lowest since early March. West Texas Intermediate for July slid 5.24% to $80.43. European natural gas futures also tumbled 5.88% to €44.034 per megawatt-hour. The fall reflected optimism that the Strait of Hormuz would soon be navigable, easing supply disruptions that had plagued markets since the war's onset.

Stock markets rally, energy shares dip

European equities advanced: the EuroStoxx 600 rose 1%, while Paris gained 1.47% and Frankfurt 1.74%. Japan's Nikkei surged 4.99%. However, oil and gas stocks corrected, with Galp dropping over 4% in Lisbon, pulling the PSI index down 0.30%.

Global leaders welcome agreement

EU leaders and the UN Secretary-General hailed the deal. European Commission President Ursula von der Leyen stressed that unrestricted freedom of navigation is essential for regional stability and the global economy. European Council President António Costa said the EU is ready to support a lasting peace. UN Secretary-General António Guterres called it "a crucial step" toward a peaceful resolution.

“Freedom of navigation must be restored without restrictions.”

“It is a crucial step toward a peaceful solution to the conflict.”

Next steps and G7 summit

President Trump traveled to Evian, France, on Monday for the G7 summit, the first meeting of leaders from the US, Germany, France, UK, Italy, Canada, and Japan since the conflict began. He is expected to flesh out details of the accord, though neither Israeli Prime Minister Benjamin Netanyahu nor Saudi Crown Prince Mohamed bin Salmán are expected to attend. Meanwhile, shippers and traders remain cautious, awaiting concrete security guarantees. According to data intelligence firm Kpler, nearly 600 tankers are stuck in the Persian Gulf, ready to depart, and hundreds more wait empty outside the Strait. Normalizing traffic is expected to take time.