Oil prices fell sharply in early Asian trade on Monday after Pakistan announced that the United States and Iran had reached a deal to end their conflict and reopen the Strait of Hormuz, a key route for global energy shipments.
Brent crude, the international benchmark, dropped about 4 percent to $83.81 a barrel, while US West Texas Intermediate fell 4.7 percent to $80.89.
Pakistan’s Prime Minister Shehbaz Sharif said the formal signing ceremony would take place in Switzerland on Friday, June 19. US President Donald Trump also welcomed the agreement on social media, telling markets to “let the oil flow”.
Iran’s Deputy Foreign Minister Kazem Gharibabadi confirmed on state television that a deal with the US had been finalised.
The Strait of Hormuz had been effectively closed since shortly after the US and Israel launched airstrikes on Iran on February 28. Tehran had threatened to attack vessels using the waterway, through which about 20 percent of the world’s oil and liquefied natural gas normally passes.
Oil markets have been volatile throughout the conflict, with prices often swinging sharply in response to military and diplomatic developments. Brent crude had traded around $70 a barrel before the conflict began and rose to about $120 during the war.
Analysts cautioned that uncertainty could remain even after the deal announcement. Vandana Hari of energy market analysis firm Vanda Insights said the lack of detail on what had been agreed was likely to create unease in the market.
Energy experts also warned that oil flows through the Strait of Hormuz may not return to normal immediately. Andrew Lipow of Lipow Oil Associates said mines would need to be cleared from the waterway, a process that could take from several weeks to six months.
He also said a backlog of tankers was waiting to use the route and that restarting oil production and returning ship loading to normal levels could take weeks.
Asian stock markets rose as investors welcomed the prospect of easing geopolitical tensions and lower energy costs. Japan’s Nikkei 225 climbed 4.3 percent in morning trade, while South Korea’s Kospi gained more than 5 percent. Asia had been hit particularly hard by the surge in energy prices, as many regional economies rely heavily on Middle Eastern oil and LNG supplies.
Source: BBC
