Oil prices have dropped sharply after Israel confirmed it had agreed to a ceasefire with Iran, brokered by the US, easing fears of a stagflationary slump in the world economy.
Donald Trump wrote on the Truth Social platform on Tuesday morning: “It has been fully agreed by and between Israel and Iran that there will be a Complete and Total CEASEFIRE.”
Brent crude, the global benchmark, fell for a second day, down by 5.4% to $67.65 (£49.83) a barrel, after tumbling by 7% on Monday, returning to levels last seen on 11 June, the day before Israellaunched a series of strikes against Iran’s nuclear and military sites.
Israel said in a statement on Tuesday morning: “In light of achieving the objectives of the operation, and in full coordination with President Trump, Israel has agreed to the president’s proposal for a bilateral ceasefire.”
This brought relief to financial markets. In London, the FTSE 100 opened up 0.8%. In Asia, Japan’s Nikkei rose by 1.1% and Hong Kong’s Hang Seng gained 2.1%.
On Monday, Iranian action against al-Udeid airbase in Qatar raised hopes that the conflict would not immediately disrupt oil supplies from the region. No casualties were reported after the strike, which the US Department of Defense described as “largely symbolic” after the US bombed three nuclear sites in Iran on Saturday.
Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said: “Focus may now return to core fundamentals: Opec’s production ramp-up plans, global demand trends and softening growth outlook – all of which argue for weaker oil prices. Should the market revert to a pre-tension scenario, US crude could fall below $65 a barrel and resume its year-to-date bearish trajectory.
“If tensions re-escalate, prices may spike again – but geopolitically driven rallies tend to be short-lived and are better suited for tactical plays than long-term exposure.”
While the Iranian parliament voted to close the strait of Hormuz – through which more than a fifth of the world’s oil supply, 20m barrels, and much of its liquefied gas passes each day – it has so far remained open.
It is somewhat the lesser of the two evils,” said Matt Smith, a Kpler analyst. “It seems unlikely that they’re going to try and close the strait of Hormuz.”
On Monday, US stocks also rose slightly, with the benchmark S&P 500 up nearly 1% and the Dow Jones industrial average rising 0.9% in New York.
John Canavan, a lead analyst at Oxford Economics, observed on Monday that investors had become “jaded to geopolitical risks and greater uncertainty after the events throughout this year so far”.
