Oil prices have dropped sharply following a reported agreement between the United States and Iran to implement a two-week ceasefire that includes the reopening of the Strait of Hormuz. According to the BBC, the price of benchmark Brent crude fell by about 13% to $94.80 (£70.73) a barrel, while US-traded oil was more than 15% lower at $95.75.

Energy Prices Remain Elevated Despite Drop

Although oil prices have fallen, they remain higher than before the conflict started on 28 February, when it was trading at around $70 a barrel. The cost of energy has jumped as oil and gas supplies from the Middle East have been severely disrupted after Iran threatened to attack ships trying to use the strait in retaliation to US and Israeli airstrikes.

Global Stock Markets Rally

Stock markets in Europe opened higher following sharp rises in Asia. London’s FTSE 100 share index jumped by 2.53% in opening trade. In France, the Cac gained 4% while Germany’s Dazx rose by nearly 5%. Japan’s Nikkei 225 gained 5% while South Korea’s Kospi jumped nearly 6%. Hong Kong’s Hang Seng was up 2.8%, while the ASX 200 in Australia gained 2.7%.

US stock market futures also pointed to a higher open for Wall Street. Futures contracts are an agreement to buy an asset for a set price at a later point in time. In the case of US stock futures, they can indicate the direction of the market before it opens.

Trump Announces Conditional Ceasefire

In a social media post on Tuesday evening, Trump said: “I agree to suspend the bombing and attack of Iran for a period of two weeks… subject to the Islamic Republic of Iran agreeing to the COMPLETE, IMMEDIATE, and SAFE OPENING of the Strait of Hormuz.” He had set a deadline for 20:00 EDT on Tuesday (00:00 GMT on Wednesday), threatening that “a whole civilisation will die tonight” if no deal was reached.

Iranian Foreign Minister Abbas Araghchi said on social media that Tehran will agree to a ceasefire “if attacks against Iran are halted”, adding that safe passage through the Strait of Hormuz “will be possible.”

Despite his threats, Trump was likely to be wary about letting energy prices “skyrocket” by escalating the conflict, said Xavier Smith from market research firm AlphaSense. That could have led to a “self-inflicted economic wound” that few would risk, especially given the looming pressure of approval ratings on Trump’s leadership, said Smith, a research director.

Relief for Energy Markets

More oil tankers stranded near the strait may be able to pass through the waterway during the ceasefire, providing some relief for markets in the coming weeks, said analyst Saul Kavonic from financial services firm MST Marquee. Despite the conflict, some ships have passed through the Strait of Hormuz, although far fewer than usual.

China has also acknowledged that several of its ships have crossed the strait since the war began. And a Japanese ship carrying natural gas also made it out of the strait, shipping giant MOL confirmed.

Kavonic said that while a ceasefire is in place, it is still unlikely that energy production in the Middle East will fully resume until there is confidence of a lasting peace deal. It could also take months for production to restart due to damage done to energy infrastructure in the region, he said.

Long-Term Economic Impact

Iran has targeted energy and industrial infrastructure across the oil-rich region in retaliation to the US-Israeli strikes. It could take years to fix the damage and cost more than $25bn, according to research firm Rystad Energy. Energy prices jumped in mid-March after strikes on Qatar’s Ras Laffan industrial hub, which produces about a fifth of the world’s liquefied natural gas.

The hub’s owners said the attacks have reduced the country’s export capacity by 17% and that it will take up to five years to repair the damage. Asia has been hit particularly hard by the economic fallout of the Iran war as many countries are heavily reliant on energy from the Gulf.

Governments and companies across the region have announced measures in recent weeks to deal with high energy prices and fuel shortages. On 24 March, the Philippines, which imports 98% of its oil from the Middle East, became the first country to declare a national energy emergency after petrol prices more than doubled.

Developing countries in Asia have been especially affected by the conflict as many do not have their own refineries or sufficient oil reserves, said Ichiro Kutani from Japan’s Institute of Energy Economics. “The ceasefire is good news for Asian countries. If it holds, oil prices will return to normal states, though this will take time.”