Oil prices fell further below $80 per barrel on Thursday, June 18, after the United States and Iran signed a peace agreement aimed at ending the conflict between the two countries and reopening the strategically important Strait of Hormuz.

 

 

Benchmark Brent crude dropped by 2% to $77.90 per barrel, after briefly falling to $77.10 during trading. The decline followed confirmation from Pakistan’s Prime Minister, Shehbaz Sharif, who said leaders of both countries had signed the agreement, paving the way for the immediate reopening of the Strait of Hormuz and the lifting of the US naval blockade.

 

 

According to Sharif, “Iran will instantly reopen the Strait of Hormuz and the United States of America will immediately lift the naval blockade.” Although a formal signing ceremony is scheduled to take place in Switzerland on Friday, the agreement is already in effect. The deal guarantees free passage through the Strait of Hormuz for an initial period of 60 days while further negotiations continue.

 

 

The Strait of Hormuz is one of the world’s most critical energy routes, carrying around one-fifth of global oil and gas supplies. During the conflict, fears of prolonged disruption pushed oil prices as high as $120 per barrel. However, prices have now retreated closer to pre-conflict levels, with Brent crude approaching the $73 per barrel mark recorded before hostilities began.

 

 

The drop in oil prices weighed on energy stocks, contributing to a decline in London’s FTSE 100 Index, which fell 0.7% shortly after markets opened. Shares in major energy companies BP and Shell both declined by more than 1%, while Centrica and National Grid also recorded losses.

 

 

US President Donald Trump confirmed the agreement during a dinner hosted by French President Emmanuel Macron at the Palace of Versailles following the G7 summit in France. Under the initial peace deal, Iran has agreed not to develop or acquire nuclear weapons and will downgrade its stockpile of highly enriched uranium. In exchange, the United States will ease certain sanctions, allowing Iran to resume unrestricted oil exports.

 

 

Susannah Streeter, chief investment strategist at Wealth Club, said the agreement was placing downward pressure on oil prices as additional Iranian oil supplies are expected to enter global markets.

 

 

“The digital signing of the interim agreement between the US and Iran, ahead of an official ceremony on Friday, is exerting a fresh downward force on prices, as new supplies are expected to hit the market just as demand has been weakened by rationing and energy-efficiency measures,” she said.

 

 

The fall in crude prices is expected to ease inflationary pressures and could help reduce fuel and energy costs for consumers after recent price increases linked to the conflict.

 

 

However, investor sentiment remained cautious after comments from newly appointed US Federal Reserve Chairman Kevin Warsh suggested the possibility of future interest rate increases. The remarks surprised markets and contributed to a 1% decline in the Dow Jones Industrial Average overnight.

 

 

Chris Beauchamp, chief market analyst at IG, said Warsh’s comments signalled a tougher approach to monetary policy than many had anticipated. “If last night’s press conference was Warsh’s attempt to put clear blue water between him and Donald Trump, then he has succeeded,” Beauchamp said. “Far from being a rate-cut obsessive, he has taken the committee down a more hawkish path, one they seem happy to follow.”