Oil prices experienced a sharp decline following the announcement of a peace agreement between the United States and Iran. The reopening of the Strait of Hormuz led to an immediate drop in prices as President Donald Trump assured that oil supply would resume. Brent crude, the global oil standard, fell by 3.8% to $84.02 per barrel, while US-traded oil decreased by 4.1% to $81.40.
Pakistan confirmed that the formal signing of the agreement would take place in Switzerland on Friday. Although specific details of the deal are yet to be confirmed by both countries, Iranian state media outlined a 14-point memorandum of understanding. This agreement includes the US naval blockade being lifted within 30 days and the reopening of the Strait of Hormuz within the same period under Iranian control.
The strait had been closed since the US and Israel conducted airstrikes on Iran in late February. This strategic waterway is responsible for transporting around 20% of the world’s oil and gas supplies.
In response to the deal, President Trump expressed his success on Truth Social, emphasizing that peace and security would prevail in the region. He highlighted his role in achieving a breakthrough where past leaders had failed and reiterated the resumption of global oil flow.
In an interview with the New York Times, President Trump confirmed that the agreement ensures the Strait of Hormuz will remain toll-free indefinitely. Despite the agreement, petrol prices have been fluctuating and rose to an average of 158.52p per liter in May, according to the RAC.
Despite the deal, JP Morgan had previously forecasted that global oil prices would likely remain in the “low $100s” for much of the year, even after the reopening of the Strait of Hormuz. It is anticipated that oil supplies in the region will take time to return to normal levels.