Oil prices continued their decline in early trade on Thursday after the United States and Iran signed an interim agreement aimed at ending the Iran war, reopening the Strait of Hormuz, and waiving US sanctions on Tehran’s oil, according to Business Today. The move is seen as a step toward resolving what has been described as one of the largest energy supply disruptions in history.
Price Movements
Around 7 am IST, WTI Crude was trading at $76.10, down 0.69 points or 0.90%, while Brent Crude stood at $78.86, down 0.69 points or 0.87%. A day earlier, on Wednesday, WTI crude was at $76.46 per barrel and Brent crude at $79.41 per barrel.
Since the announcement of the peace deal, both benchmark crude prices have fallen by over 5%, hitting three-month lows amid expectations that a US-Iran deal could restore oil flows through the Strait of Hormuz, Business Today reported.
| Benchmark | Wednesday Price | Thursday Price | Change | % Change |
|---|---|---|---|---|
| WTI Crude | $76.46 | $76.10 | -$0.69 | -0.90% |
| Brent Crude | $79.41 | $78.86 | -$0.69 | -0.87% |
Deal Details
The proposed framework seeks to restore conditions to the pre-war status quo. The 14-point memorandum between the two countries marks the beginning of a 60-day negotiation period, during which Iran will permit toll-free passage through the Strait of Hormuz, a vital shipping route for global oil and gas. Additionally, it sets out plans for traffic through the strait to be restored to full capacity within 30 days.
However, the preliminary accord has left several major issues unresolved, including Iran’s nuclear programme. It also requires the United States and its partners to prepare a $300 billion financing plan to support Iran’s economic recovery, according to Business Today.
While announcing the deal, US President Trump also warned that attacks could resume and Iranian officials could be targeted if Tehran failed to uphold its commitments. Speaking at the G7 summit in France, Trump also appeared to soften one of the justifications he had previously cited for military action against Iran, saying it would be "unfair" for Tehran not to possess ballistic missiles despite earlier pledges to eliminate them.
Supply Disruption and Outlook
The peace deal comes after over 4 months since the US and Israel launched joint strikes on Iran, after which the country tightened its noose on the Strait of Hormuz, squeezing energy supplies across the globe. The disruption pushed fuel prices higher, with crude touching $126 as the conflict raged on, Business Today reported.
If successfully implemented and the Strait of Hormuz reopened, the International Energy Agency (IEA) has warned earlier, the current supply crisis could shift into a major surplus by 2027. In its monthly market report, the agency projected that global supply could exceed demand by 5.05 million barrels per day next year as Middle Eastern oil returns to the market.
The IEA has warned that the current supply crisis could shift into a major surplus by 2027 if the Strait of Hormuz reopens.
The resolution of this geopolitical risk and the potential return of Iranian oil to global markets are now key factors for traders and procurement teams to monitor. The 60-day negotiation period and the 30-day timeline for full strait capacity will be critical milestones that could further influence price direction.
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