Oil Prices Plunge 16% on Fragile Iran Ceasefire Hope

A tentative two-week ceasefire between the US and Iran sent oil prices plunging, with WTI crude tumbling nearly 16 percent to $95 a barrel as global markets rallied on hopes that the Strait of Hormuz may soon reopen.

“The market has been eager to get good news but it remains to be seen if the Strait of Hormuz opens fully,” Bob McNally, founder and president of Rapidan Energy Group, told CNN. “That’s the whole ball of wax.”

The relief was felt across asset classes, with US stock futures surging over 2.5 percent and Asian indices posting strong gains, led by a 6.87 percent rally in South Korea’s Kospi. Brent crude, the global benchmark, fell 14 percent to $93.80 a barrel.

The core issue remains the transit of tankers through the strait, which handles 20 percent of the world’s oil. Iran has signaled it may charge transit fees, a move that could complicate the fragile truce and keep 172 million barrels of oil stranded.

Strait of Hormuz Remains Choke Point

The ceasefire agreement hinges on the reopening of the crucial shipping lane, but the terms remain contentious. The war and the effective closure of the strait have choked off roughly 12 million to 15 million barrels of crude oil a day, which Kpler data shows has left 187 tankers laden with 172 million barrels of oil stuck inside the Gulf.

Iran’s semi-official Tasnim news agency reported that Iran and Oman plan to charge transit fees for passage. This follows recent reports of Tehran charging some shippers a $2 million fee for safe passage. Such a fee, which would add roughly $1 per barrel to crude costs according to Neil Shearing at Capital Economics, is unlikely to be acceptable to the United States and its allies.

“There are significant hurdles to overcome before the ceasefire agreement between the US, Israel and Iran can translate into a lasting end to the war,” Shearing noted. While ship-tracking platform MarineTraffic reported early Wednesday that two vessels had transited the strait, the backlog will not clear overnight.

Global Markets Post Relief Rally

News of the truce, which President Trump announced less than two hours before a deadline to destroy a “whole civilization,” sparked a significant relief rally in global markets. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng gained 5.39 percent and 3.09 percent respectively. European bourses followed, with Germany’s Dax jumping 4.6 percent.

In the US, Dow futures surged by 1,200 points, or 2.6 percent, with futures tied to the S&P 500 gaining 2.7 percent and Nasdaq 100 futures rising by 3.5 percent.

Still, the temporary nature of the ceasefire and Iran's demonstrated ability to disrupt energy markets have left some analysts cautious. “Beyond the near term, Iran’s ruling regime has (arguably) solidified its political control, and has demonstrated its capacity for bringing global oil and gas markets to their knees,” Karl Schamotta of Corpay Currency Research wrote in a note.

This article is for informational purposes only and does not constitute investment advice.