Oil prices saw a significant drop while stock markets experienced an upswing following comments from Donald Trump indicating a potential end to the conflict with Iran. The U.S. President suggested that if Tehran were to agree to a deal with Washington, the critical Strait of Hormuz could be accessible to all, including Iran. Trump’s remarks on social media hinted at a peaceful resolution, provided Iran adheres to prior agreements. However, he cautioned that failure to reach an agreement would result in intensified military action.
Trump’s statements followed his decision to temporarily pause Operation Project Freedom, which involved escorting ships through the Strait of Hormuz. This strategic waterway, responsible for transporting about 20% of the world’s oil supplies, has been under blockade by Iran since late February, contributing to a global energy crisis. While the U.S. will halt its operations momentarily to finalize negotiations with Tehran, the blockade on Iranian ports remains active. In response, Iran’s Revolutionary Guards’ Navy announced that new measures would guarantee safe passage through the strait, marking their first reaction to the U.S. pause on ship escorts.
The market reacted swiftly to these developments. Brent crude oil prices, which had surged by 6% earlier in the week due to tensions in the Middle East, plummeted by 11% to $97 a barrel, marking its first dip below $100 since April 22. Wholesale gas prices also decreased, with the British June contract falling by 6.3% to 107.8p a therm. Airline stocks benefited from the prospect of improved international travel conditions. The drop in oil prices accelerated after reports suggested the White House was nearing a memorandum of understanding to end the conflict with Iran, setting the stage for more comprehensive nuclear discussions. However, later in the day, oil prices partially rebounded to $101.83 a barrel as Iran dismissed the U.S. proposal as unrealistic.
Iran’s statement regarding the new procedures for the strait did not provide specific details but expressed appreciation to shipowners and captains for adhering to Iranian regulations in transit. The oil market had recently experienced a peak of $126 a barrel, the highest since 2022, amid stalled peace talks and the ongoing U.S. blockade of Iranian ports.
European stock markets responded positively to the news of potential de-escalation. The UK’s FTSE 100 index rose by 2%, while France’s Cac 40 and Germany’s Dax saw increases of 3% and 2.1%, respectively. Additionally, the MSCI’s All-Country World Index reached a record high with a 1.6% rise, alongside significant gains in its emerging markets benchmark and a 2.5% increase in its broadest Asia Pacific shares index outside Japan.