LONDON: Global oil prices fell sharply and stock markets rallied on Monday after Pakistan’s Prime Minister Shehbaz Sharif announced that the United States and Iran had reached a peace agreement to end the conflict and reopen the Strait of Hormuz for shipping.
The breakthrough sparked relief across financial markets after nearly three months of conflict that had driven crude prices higher and fuelled concerns about a fresh inflation shock to the global economy.
In a statement posted on X on Monday, Prime Minister Sharif said Washington and Tehran had agreed to the “immediate and permanent termination of military operations on all fronts, including in Lebanon”. He added that the agreement would be formally signed in Switzerland on June 19.
The Strait of Hormuz, through which around 20 percent of the world’s crude oil supply normally passes, was effectively closed by Iran following US and Israeli strikes in late February, causing energy prices to surge and unsettling global markets.
Oil markets react
Energy prices tumbled after news of the agreement emerged.
US benchmark West Texas Intermediate (WTI) crude fell more than five percent in early trading to around $80 per barrel, while Brent crude, the international benchmark, dropped about 4.5 percent to around $83 per barrel.
According to market data, Brent North Sea crude was down 5.0 percent at $82.93 a barrel by around 1345 GMT, while WTI was trading 5.3 percent lower at $80.40.
The declines left both benchmarks at their lowest levels since early March, shortly after the conflict began.
Heating oil fell three percent, while wholesale gasoline prices dropped four percent. Natural gas futures also declined around three percent.
Oil prices had already fallen more than six percent over the previous week amid growing expectations that a diplomatic breakthrough was approaching amid Pakistan-led diplomatic efforts.
Despite Monday’s decline, crude prices remained roughly 40 percent higher than at the beginning of the year.
Retail fuel costs also remained elevated. The average price of unleaded gasoline in the United States stood at $4.07 per gallon, about 36 percent higher than on February 28.
Global stocks advance
Equity markets around the world moved higher as investors welcomed the prospect of renewed stability in the Middle East.
Europe’s Stoxx 600 index rose nearly one percent to a record high, while Wall Street opened firmly higher.
The Dow Jones Industrial Average gained 1.1 percent to 51,746.19 points. The S&P 500 rose 1.6 percent to 7,551.22, while the Nasdaq Composite advanced 2.6 percent to 26,551.35.
Airline and travel stocks were among the strongest performers as investors anticipated lower fuel costs and improving economic conditions.
Technology shares also gained on hopes that easing energy prices would reduce inflationary pressures and limit the need for higher interest rates.
In Europe, Frankfurt’s DAX rose 1.3 percent and Paris’s CAC 40 gained 0.7 percent. London’s FTSE 100, however, slipped 0.3 percent as losses among major oil companies weighed on the index.
Asian markets also posted strong gains. Tokyo’s Nikkei 225 surged five percent, while Seoul’s stock market climbed by a similar margin. Hong Kong’s Hang Seng Index rose 0.7 percent and Shanghai’s Composite Index gained 1.6 percent.
Investors welcome de-escalation
US President Donald Trump signalled confidence that maritime traffic through the Strait of Hormuz would resume normally following the agreement.
“The Deal with the Islamic Republic of Iran is now complete,” Trump said on Sunday. “Ships of the World, start your engines. Let the oil flow!”
On Monday, Trump added on his Truth Social platform that ships carrying oil were beginning to move through the Strait of Hormuz along a route he described as “totally safe, secure, and pristine”.
Iranian Deputy Foreign Minister Kazem Gharibabadi said the agreement brought an “immediate end” to the war and announced that negotiations on a final agreement would continue over the next two months.
