London: Global oil prices plunged sharply on Friday after Iran signalled that commercial shipping through the Strait of Hormuz would remain open during the ongoing ceasefire period, easing fears of supply disruption.
Strait of Hormuz tensions ease, markets react
Iran’s foreign minister stated that all commercial vessels would be allowed safe passage through the strategically vital Strait of Hormuz, a key chokepoint for global oil shipments. The announcement signalled a temporary de-escalation in tensions in the Middle East.
The Strait of Hormuz is one of the world’s most critical oil transit routes, and any disruption typically sends prices soaring. However, reassurance over continued access had the opposite effect—triggering a sharp sell-off.
Brent and WTI see steep declines
Benchmark crude prices recorded significant losses following the announcement.
Brent crude futures dropped by $11.12, or 11.2%, to $88.27 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude fell $11.40, or 12%, to $83.29 per barrel.
The decline adds to earlier losses in the session, reflecting improving market sentiment around geopolitical risks.
Ceasefire hopes weigh on oil markets
Oil prices were already under pressure due to broader expectations of easing tensions in the region. Reports of a potential 10-day ceasefire between Lebanon and Israel, along with the possibility of renewed talks between the United States and Iran, contributed to the downward trend.
Analysts suggest that reduced geopolitical risk often leads to lower oil prices, as fears of supply disruptions diminish.
A UBS analyst noted that the Iranian statement points to de-escalation, but added that markets will closely monitor whether tanker traffic through the Strait increases significantly in the coming days.
US-Iran talks add to optimism
Further influencing sentiment were comments from former US President Donald Trump, who indicated that progress was being made in negotiations with Iran.
Trump said Tehran had offered assurances regarding its nuclear programme, adding that a deal could be close.
Such developments have raised hopes of stability in the region, reducing the risk premium typically built into oil prices during conflicts.
What this means for global markets
The sharp fall in oil prices reflects how sensitive energy markets are to geopolitical developments. Even temporary assurances—such as safe passage through key shipping routes—can lead to immediate price corrections.
For consumers and importing countries, lower oil prices can ease inflationary pressures. However, for oil-producing nations, such declines may impact revenues.
Conclusion
Oil markets reacted swiftly to signs of easing tensions in the Middle East, with prices falling over 10% after Iran signalled continued access through the Strait of Hormuz. While uncertainty remains, the latest developments suggest a temporary cooling of geopolitical risks—at least for now.