Key Points:
- Oil prices fell sharply after Trump announced a ceasefire with Iran.
- Hopes rose for the reopening of the Strait of Hormuz.
- Stock markets surged in response to the news.
- Analysts remain cautious about the long-term impact and full opening of the Strait.
Oil prices dropped sharply on Tuesday after President Donald Trump agreed to a two-week ceasefire with Iran. This news sparked hopes that more oil tankers would soon be able to pass through the crucial Strait of Hormuz. However, analysts warned that important questions remain. It’s still unclear what will change regarding the effective blockade of the strait, which sees about 20% of the world’s oil pass through it. Doubts also linger about whether this ceasefire will lead to a lasting end to the war.
U.S. crude futures fell more than 15% after hours, dipping below $95 a barrel. While a significant drop, this is still well above the $67.02 price settled on February 27, before the war began. Brent crude futures, the international benchmark, also declined by 12.88% to $95.12. Meanwhile, U.S. stock futures and Asian markets jumped. Dow futures climbed over 900 points, or about 2%. S&P 500 futures increased by 2.1%, and Nasdaq futures rose around 2.5% in after-hours trading.
On Wednesday morning, Japan’s benchmark index Nikkei 225 surged 4.9% by 10:41 am local time, while South Korea’s Kospi gained 5.7%. Hong Kong’s Hang Seng index also saw a 2.8% rise. “The market has been eager to get good news but it remains to be seen if the Strait of Hormuz opens fully,” Bob McNally, founder and president of Rapidan Energy Group, told CNN. “That’s the whole ball of wax and so far Washington and Tehran seem to be talking past each other on that.”
While Trump celebrated on social media, Iran made it clear that the ceasefire was only temporary. “This is not the end of the war but all military branches should follow the Supreme Leader order and cease their fire,” a statement read out on state-run news channel IRIB.
Still, the surge in stocks and the fall in oil prices sent a “very clear” message, Art Hogan, chief market strategist at B. Riley Financial, told CNN: “Investors would like to get the Strait of Hormuz open and this conflict behind them.”
Trump agreed to the ceasefire less than two hours before his 8 pm ET deadline to destroy a “whole civilization.” He stated that the agreement depended on the reopening of the Strait of Hormuz. “We received a 10 point proposal from Iran, and believe it is a workable basis on which to negotiate,” Trump posted on Truth Social on Tuesday night.
The Middle East war, and the effective closure of the crucial Strait of Hormuz, caused the biggest oil supply shock on record, impacting roughly 12 million to 15 million barrels of crude oil a day. Both the futures and physical oil markets had shown major warning signs.
However, whether the Strait can simply return to normal business operations is uncertain. Iran also claimed victory and stated its military would regulate passage through the Strait of Hormuz, which would give Iran “unique economic and geopolitical standing,” according to a statement from Iran’s Secretariat of the Supreme National Security Council.
