Oil prices experienced a significant decline following the announcement of a peace agreement between the United States and Iran. The reopening of the Strait of Hormuz resulted in an immediate drop in prices as President Donald Trump assured that oil flow would resume.
Brent crude, the global oil standard, saw a 3.8% decrease to $84.02 per barrel, while US-traded oil dropped by 4.1% to $81.40. Pakistan confirmed that the formal signing of the agreement would take place in Switzerland on Friday.
Although the specific terms of the deal have not been officially disclosed by either country, Iranian state media has outlined a 14-point memorandum of understanding. This includes the removal of the US naval blockade within 30 days and the reopening of the Strait of Hormuz within the same timeframe under Iranian supervision.
The strait had been effectively closed since the US and Israel conducted airstrikes on Iran on February 28. Notably, the strait facilitates the transit of approximately 20% of the world’s oil and gas resources.
Following the agreement, President Trump utilized Truth Social to share his views, emphasizing his success in achieving peace where past leaders had failed. He reiterated the resumption of global oil flow and the positive impact on regional stability.
In a statement to the New York Times, President Trump confirmed that the agreement ensures the Strait of Hormuz will remain toll-free permanently. Despite the deal, petrol prices have continued to rise, reaching an average of 158.52p per liter in May, according to the RAC.
JP Morgan, an investment bank, previously predicted that global oil prices would likely linger in the “low $100s” throughout the year, even after the potential reopening of the Strait of Hormuz. Normalizing oil supplies in the region is expected to take some time.