Oil prices saw a significant drop while stock markets experienced a rise following U.S. President Donald Trump’s announcement that hostilities with Iran could soon conclude. Trump indicated that the strategic Strait of Hormuz would become “open to all” if Tehran agreed to a deal with Washington. In a social media post, Trump mentioned that an end to the conflict, dubbed “Epic Fury,” was contingent on Iran’s compliance with negotiated terms, though he acknowledged this was a “big assumption.” He warned that failure to reach an agreement would lead to intensified military actions.
Trump’s remarks came after he declared a temporary halt to “Project Freedom,” a U.S. military operation intended to escort vessels through the Strait of Hormuz. This waterway, crucial for transporting about 20% of the world’s oil supply, has been under an Iranian blockade since late February, causing a global energy crisis. While pausing the operation to pursue diplomatic negotiations, Trump confirmed that the blockade on Iranian ports would remain. In response, Iran’s Revolutionary Guards’ Navy issued a statement ensuring safe passage through the strait, noting that U.S. threats were diminishing, although they did not detail the new procedures involved.
The market reacted swiftly to these developments. Brent crude oil, which had surged by up to 6% earlier in the week due to recent Middle Eastern conflicts, plunged 11% to $97 a barrel, marking its first dip below $100 since April 22. Similarly, wholesale gas prices saw a decline, with the British June contract dropping 6.3% to 107.8 pence per therm. Airline stocks benefitted from the prospect of improved international travel conditions. Reports surfaced suggesting that the White House was nearing a one-page memorandum of understanding to end the conflict with Iran, potentially setting the stage for detailed nuclear discussions despite Iran dismissing it as an “American wishlist.” This tempered the oil price drop, which later stabilized, trading down 7.3% at $101.83.
European stock markets responded positively to the potential de-escalation. The UK’s FTSE 100 index increased by 2%, while France’s Cac 40 and Germany’s Dax saw rises of 3% and 2.1%, respectively. Globally, the MSCI’s All-Country World Index also reached a new high, climbing 1.6%, alongside records for its emerging markets benchmark and Asia Pacific shares outside Japan, which rose by 2.5%.
Despite the initial optimism, the situation remains fluid with Iran’s response and the specifics of any agreement still in question. The Iranian Guards’ statement acknowledged the cooperation of shipowners and captains adhering to Iranian regulations, though details of the new procedures remain unspecified. The oil market, having hit a peak of $126 a barrel the previous week, continues to experience volatility as diplomatic efforts unfold.