Oil prices dropped below $80 per barrel on Thursday after the United States and Iran reached a peace agreement aimed at ending hostilities and restoring access through the vital Strait of Hormuz, a key route for global energy supplies.
Benchmark Brent crude fell by 2 percent to $77.90 per barrel, having briefly touched $77.10 during trading. The decline followed reports that both countries had signed an agreement that paves the way for the reopening of the Strait of Hormuz and the lifting of the US naval blockade.
Pakistan’s Prime Minister, Shehbaz Sharif, confirmed the development, stating that Iran would immediately reopen the strategic waterway while the United States would lift restrictions on Iranian ports. Although a formal signing ceremony is scheduled to take place in Switzerland on Friday, the agreement has reportedly taken effect.
The deal guarantees unrestricted passage through the Strait of Hormuz for an initial 60-day period while both sides continue negotiations on longer-term arrangements.
The Strait of Hormuz handles roughly one-fifth of global oil and gas shipments, making it one of the world’s most important energy corridors. Concerns over disruptions during the conflict had pushed oil prices as high as $120 per barrel. With tensions easing, prices have retreated toward levels seen before the crisis.
The fall in crude oil prices affected energy stocks, contributing to a decline in London’s FTSE 100 Index, which dropped 0.7 percent shortly after trading opened. Shares of major energy companies, including BP and Shell, also recorded losses, while other energy-related firms saw similar declines.
US President Donald Trump confirmed the agreement during a dinner hosted by Emmanuel Macron at the Palace of Versailles following the G7 summit in France.
Under the terms of the agreement, Iran has pledged not to pursue the development or acquisition of nuclear weapons and to reduce its stockpile of highly enriched uranium. In return, the United States is expected to ease certain sanctions, allowing Iran to resume unrestricted oil exports.
Susannah Streeter, Chief Investment Strategist at Wealth Club, said the agreement is expected to increase oil supply at a time when global demand has softened due to energy-saving measures and slower consumption trends.
Analysts say lower oil prices could help ease inflationary pressures worldwide and potentially reduce fuel and energy costs for consumers after months of price volatility linked to geopolitical tensions.
However, financial markets remained cautious after comments from newly appointed US Federal Reserve Chairman Kevin Warsh suggested that interest rate hikes could still be considered. The remarks surprised investors and contributed to a 1 percent decline in the Dow Jones Industrial Average overnight.
Chris Beauchamp, Chief Market Analyst at IG, said Warsh’s comments signalled a more hawkish monetary policy stance than many market participants had anticipated, adding to uncertainty despite the positive impact of the US-Iran agreement on energy markets.