Live updates: US and Iran agree to conditional ceasefire
Oil prices plunged on Wednesday after US President Donald Trump announced a two-week pause in strikes on Iranian energy and civil infrastructure and Iran agreed to open the Strait of Hormuz.
Brent, the benchmark for two-thirds of the world’s oil, slumped 11.67 per cent to $96.52 a barrel at 4pm ET on Wednesday. West Texas Intermediate, the gauge for US oil, was down 14.63 per cent to $96.42 a barrel.
Brent had been marching towards its intraday high of almost $120 a barrel, reached on March 19, amid Mr Trump's repeated threats to destroy Iranian energy infrastructure if Tehran did not immediately agree to a ceasefire and reopening the strait. About 20 per cent of global oil and gas supplies pass through the waterway.
“The immediate market response to news of the ceasefire has been a sharp drop in oil prices,” said Edward Bell, chief economist and head of research at Emirates NBD.
“The conditions on how and when the strait is reopened to commercial traffic is the primary variable that will determine the near-term trajectory for energy prices.”
Hundreds of tankers, LNG carriers and bulk vessels remain stranded in the Gulf and “it will take time to resume pre-conflict levels”, he added.
In a post on Truth Social, Mr Trump said on Wednesday that he had agreed to “suspend the bombing and attack of Iran for a period of two weeks”, subject to Tehran immediately opening the strait.
Iran claimed victory, and its Foreign Minister Abbas Araghchi said, “for a period of two weeks, safe passage through the Strait of Hormuz will be possible via coordination with Iran’s armed forces”, if attacks against Iran are halted.
Wild price swings
Crude prices have swung wildly in the past few weeks, gaining almost 60 per cent – the biggest monthly gain on record – in headline-driven trading.
Hours ahead of announcing the two-week pause in bombing, Mr Trump said the US was willing to obliterate Iran's power plants and bridges if there was no deal.
“A whole civilisation will die tonight, never to be brought back again. I don’t want that to happen, but it probably will,” Mr Trump said on Tuesday on Truth Social. “Maybe something revolutionarily wonderful can happen, who knows? We will find out tonight.”
Markets feared that strikes on Iran's energy civil infrastructure, and Tehran’s potential retaliatory attacks on its Arab neighbours, would worsen disruption to global energy supplies.
Iranian officials had warned of – and carried out – attacks on American interests in the region. Tehran has been attacking its neighbours in the Gulf, hitting civilian and energy infrastructure, including oil and gas fields, industrial and petrochemical plants, as well as refineries.
“Investors should remain cautious in interpreting this as a clean resolution,” said Christian Gattiker, head of research at Julius Baer.
“The conflict continues to follow a ‘reality-TV pattern’ – characterised by rapid escalation, tactical pauses and renewed tension. The two-week truce is therefore likely a pause, not an endpoint, and the risk of renewed volatility remains high once this window closes.”
Dramatic de-escalation
The de-escalation in the five-week conflict is aimed at allowing diplomacy to take place. The blockade of Hormuz, as well as production disruption, has caused a global energy crisis. The effects have been felt strongly in Asia and Europe, which depend on the flow of oil and gas from the Gulf.
With disruptions of energy flows from the Strait and the rising cost of fuel, inflation has been on the rise. Several Asian economies have rationed energy consumption.
The International Monetary Fund and the World Bank had warned of serious consequences for the global economy if the war continued for a prolonged period.
Market participants, including global energy consultancy FGE NexantECA, expected oil to surge to $150 or $200 a barrel in the absence of a solution to open the strait.
“Every week, 100 million barrels of oil are not going through, and every month, 400 million barrels are not going through,” the company's chairman emeritus, Fereidun Fesharaki, said at the end of March. “So, within a period of time, these losses to the market will be astronomical.”
Analysts from Wood Mackenzie also hinted last month that Brent could reach $150 or even $200 a barrel. Iran had also warned of the possibility of oil prices reaching $200 a barrel, with a military spokesman last month saying the world should “get ready” for such a scenario.
Finger on the trigger
After the US announcement, Iran declared “victory” in getting America to accept its 10-point plan. The proposal, according to a statement by Iran's Supreme National Security Council, includes a US commitment to “non-aggression”, continued Iranian control over the strait, acceptance of uranium enrichment, the lifting of all sanctions, the withdrawal of US combat forces from the region and the “cessation of the war on all fronts, including against the heroic Islamic resistance in Lebanon”.
The council added that negotiations were to begin on Friday in Islamabad. “Our hands remain upon the trigger, and should the slightest error be committed by the enemy, it shall be met with full force,” it said.
The US has yet to elaborate on what is included in the 10-point plan and whether Iran will continue to exert control over the strait.
In his social media post, Mr Trump said he agreed to the two-week delay because the US had “already met and exceeded” all of its military objectives and was “very far along with a definitive agreement concerning long-term peace with Iran, and peace in the Middle East”.
“Almost all of the various points of past contention have been agreed to between the United States and Iran, but a two-week period will allow the agreement to be finalised and consummated,” he said.
