VERSAILLES, France: Oil prices extended their decline on Thursday after US President Donald Trump and Iranian President Masoud Pezeshkian formally endorsed a memorandum of understanding aimed at ending months of conflict and reopening the Strait of Hormuz, raising hopes of greater stability in global energy supplies.
The development strengthened expectations of a sustained easing in tensions between Washington and Tehran following more than three months of hostilities that had unsettled financial markets and fuelled inflationary pressures in several economies.
Despite the improved sentiment, investor optimism remained somewhat restrained by concerns that the US Federal Reserve could raise interest rates later this year after signalling that inflation remained stubbornly above target.
Attention is now focused on the Strait of Hormuz, a key maritime route through which nearly one-fifth of the world’s oil supplies normally pass.
Iran had effectively shut the waterway after the outbreak of war with the United States and Israel on February 28, disrupting global energy markets and pushing crude prices sharply higher.
Pakistan, which played a mediating role in securing the agreement, announced that the first phase of the understanding would involve the immediate reopening of the Strait of Hormuz and the lifting of the US naval blockade.
Prime Minister Shehbaz Sharif stated on X that, as an initial step, Iran would reopen the strategic passage while the United States would simultaneously end restrictions imposed through its naval presence.
“As a first step, Islamic Republic of Iran will instantly reopen the Strait of Hormuz and the United States of America will immediately lift the naval blockade,” Pakistan Prime Minister Shehbaz Sharif, whose officials mediated the agreement, said on X.
I am honoured to announce that the historic ‘Islamabad Memorandum of Understanding’ has been electronically signed today between the United States of America and the Islamic Republic of Iran. The Memorandum has been signed by honourable Presidents of both the countries and also…
— Shehbaz Sharif (@CMShehbaz) June 18, 2026
Crude prices fell by more than one per cent on Thursday, adding to losses recorded since reports of a possible agreement first emerged over the weekend.
Benchmark oil contracts have now declined by more than 15pc from levels seen last week, when expectations of a breakthrough began to build.
Stephen Innes of SPI Asset Management said the signing of the memorandum and the prospect of a swift reopening of the Strait of Hormuz had removed much of the geopolitical risk premium that had been supporting crude prices.
He said oil markets had been pricing in not only the immediate threat posed by the conflict but also concerns that shrinking reserves and disruptions to Gulf shipping routes could trigger a severe supply shock.
While lower oil prices offered relief to consumers and businesses, stock markets across Asia delivered a mixed performance as investors weighed geopolitical developments against the outlook for US monetary policy.
Equity markets in Tokyo, Seoul, Singapore, Taipei and Manila registered gains, reflecting renewed confidence following the diplomatic breakthrough. However, shares in Hong Kong, Shanghai, Sydney, Wellington and Jakarta ended lower amid concerns over the possibility of tighter monetary conditions in the United States.
The Federal Reserve kept interest rates unchanged at its latest policy meeting, a decision widely anticipated by markets. However, officials indicated that borrowing costs could rise during the next six months if inflationary pressures persist.
The meeting marked the first under newly appointed Federal Reserve Chair Kevin Warsh, who acknowledged that inflation had remained above the central bank’s two per cent target for several years.
Warsh said persistently high prices continued to burden American households and pledged that the Federal Reserve would remain committed to restoring price stability.
The combination of easing geopolitical tensions and lingering concerns over inflation has left investors balancing hopes of improved energy flows against the prospect of tighter financial conditions in the months ahead.
