Global oil prices plunged on Monday while stock markets rallied sharply after the United States and Iran announced a breakthrough agreement to end their war and reopen the Strait of Hormuz, easing fears over global energy supplies.
The development triggered a wave of optimism across financial markets, with investors responding positively to expectations of improved stability and lower inflation.
The United States and Iran confirmed an earlier announcement by mediator Pakistan that both countries had reached a peace deal. A formal signing ceremony is scheduled to take place in Switzerland on June 19, bringing an end to three months of conflict that had driven energy prices higher and fuelled concerns over rising inflation.
The Strait of Hormuz, a key global shipping route through which about 20 per cent of the world’s crude oil supply passes, was effectively shut by Tehran shortly after U.S.-Israel strikes on Iran ignited the conflict.
U.S. President, Donald Trump, announced the breakthrough on social media on Sunday as he marked his 80th birthday.
“The Deal with the Islamic Republic of Iran is now complete,” Trump wrote.
“I hereby fully authorise the toll-free opening of the Strait of Hormuz. Ships of the World, start your engines. Let the oil flow!”
Iran’s Deputy Foreign Minister, Kazem Gharibabadi, also confirmed that the agreement had brought an “immediate end” to the war, adding that negotiations on a final agreement would continue over the next two months.
Although the full details of the deal have yet to be disclosed, the announcement followed weeks of difficult negotiations and repeated threats by Trump of renewed military action.
Oil prices fell by as much as five per cent, with West Texas Intermediate crude dropping to around $83.30 per barrel. The benchmark had earlier surged above $110 shortly after the conflict began.
The sharp decline in crude prices also eased fears that central banks, including the U.S. Federal Reserve, could resume interest rate hikes in response to inflationary pressures.
Stephen Innes of SPI Asset Management said falling oil prices had reduced inflation risks, lowered expectations of further rate hikes and boosted investor confidence.
He added that markets had quickly shifted from pricing in wartime uncertainty to anticipating economic reopening.
However, Michael Wan of MUFG cautioned that the long-term impact of the agreement would depend on the final terms and whether both sides fully implement the deal.
Asian stock markets posted strong gains, with Tokyo and Seoul closing about five per cent higher. Shanghai, Sydney, Singapore and Taipei also finished in positive territory, while Hong Kong, London, Paris and Frankfurt recorded solid gains as investors welcomed the easing geopolitical tensions.
