Oil prices experienced a significant drop while stock markets saw a rise following statements from Donald Trump indicating a potential end to the conflict with Iran and the reopening of the Strait of Hormuz. Trump communicated via social media that if Iran adhered to previously agreed terms, the conflict known as ‘Epic Fury’ would conclude, and the blockade around the Hormuz Strait would be lifted, granting access to all, including Iran. However, he cautioned that if Iran failed to reach an agreement, military actions would resume with greater intensity.
This announcement followed Trump’s decision to temporarily halt ‘Project Freedom,’ an operation aimed at escorting ships through the strategically crucial Strait of Hormuz, a pathway for about 20% of global oil supplies. The strait had been under an Iranian blockade since late February, which contributed to a global energy crisis. Trump noted that while this operation would pause to facilitate negotiations with Tehran, the blockade of Iranian ports would persist. In response, the Iranian Revolutionary Guards’ Navy stated that safe passage through the strait would be guaranteed with the cessation of U.S. threats, and new protocols would be implemented.
The market reacted swiftly to these developments. Brent crude oil, which had surged by up to 6% earlier in the week due to escalations in the Middle East, plummeted by 11% to $97 per barrel, marking its first dip below $100 since April 22. Wholesale gas prices also declined, with the British June contract dropping 6.3% to 107.8p a therm. Airline stocks benefitted from the improved outlook for international travel. The decline in crude prices accelerated after reports emerged that the White House was nearing a memorandum of understanding to conclude the conflict with Iran, laying the groundwork for more comprehensive nuclear discussions.
Despite the initial market reaction, oil prices later recovered some losses, settling at $101.83 a barrel, down 7.3%, after Iran dismissed the U.S. proposal as an ‘American wishlist’ rather than a reality. The statement from the Iranian Guards did not clarify the specifics of the new procedures, but they expressed gratitude towards shipowners and captains for complying with Iranian regulations during transit.
The anticipation of a resolution led to a rally in European stock markets on Wednesday. The UK’s FTSE 100 index increased by 2%, France’s CAC 40 rose by 3%, and Germany’s DAX saw a 2.1% gain. Additionally, MSCI’s All-Country World Index achieved a new record, climbing 1.6%, alongside similar records for its emerging markets benchmark and Asia Pacific shares index outside Japan, which grew by 2.5%.