Following the signing of an interim peace agreement between the United States and Iran, global markets reacted positively. Brent crude oil prices fell 2.3% on Thursday in Asia, returning to near its level 24 hours prior, and generally dropping below $83 per barrel, reaching as low as $13.78 in some reports. US benchmark WTI crude dropped over 5% to around $80 per barrel. This decline in oil prices is attributed to the reduced geopolitical risk and the anticipation of the reopening of the Strait of Hormuz, a critical chokepoint that had been closed since February 28.
Asian stock markets rallied, shrugging off overnight losses on Wall Street, due to renewed optimism about an end to nearly four months of disruption to global energy supply chains. US stock futures, which often foreshadow the next day's performance, climbed significantly. Futures tied to the benchmark S&P 500 and the tech-heavy Nasdaq Composite climbed about 0.8% and 1.3% respectively. Some reports indicated even larger gains, with the Nasdaq topping 2% and the Russell 2000 opening at a record high. Norihiro Yamaguchi, lead economist for Japan at Oxford Economics, noted that markets welcomed the agreement being signed sooner than expected, with the timing also supportive as major central bank policy meetings had passed.
Pakistani Prime Minister Shehbaz Sharif, who mediated the negotiations, announced that the US-Iran memorandum of understanding (MoU) came into effect immediately. Iran is set to instantly reopen the Strait of Hormuz, and the US will lift its naval blockade of Iranian ports. The Strait of Hormuz, which normally handles 20% of the world's oil supply daily, has seen shipping reduced to a fraction of peacetime levels due to threats and the US blockade. The International Energy Agency (IEA) estimated a daily shortfall of 14 million barrels in the global oil market due to the blockage.
Despite the positive market reaction, analysts caution that practical issues remain. Fabien Yip, a market analyst at IG, stated that while optimism is high, the relief is "largely priced in," as logistical challenges such as the backlog of vessels in the Gulf and mine-clearing operations still need to be resolved. Jakob Larsen, chief safety and security officer at BIMCO, noted that the security situation for shipping remains volatile, and it is still considered very risky for ships to transit the strait at this point due to a lack of details on timings and safe routes from the US and Iran.
