Ask Onix
Oil prices drop sharply after ceasefire announcement
Global oil prices fell by over 15% on Wednesday after the United States and Iran agreed to a conditional two-week ceasefire, including the reopening of the critical Strait of Hormuz shipping route. Brent crude, the international benchmark, dropped to below $92 per barrel, while US-traded oil fell to just under $94. Despite the decline, prices remain elevated compared to pre-conflict levels of around $70 per barrel in late February.
Market reaction: Stocks surge worldwide
Financial markets responded positively to the news, with major indices posting significant gains. In the US, the Dow Jones Industrial Average and S&P 500 rose by more than 2.5%, while the Nasdaq climbed 3.3%. European markets saw even stronger rallies, with France's CAC 40 up 4.9% and Germany's Dax rising over 5%. In Asia, Japan's Nikkei 225 closed nearly 5.4% higher, South Korea's Kospi jumped 6.8%, and Hong Kong's Hang Seng gained 3%. Australia's ASX 200 rose by 2.5%.
Ceasefire terms and political context
Former US President Donald Trump announced the ceasefire in a social media post late Tuesday, stating he had agreed to suspend military actions against Iran for two weeks, contingent on Iran's commitment to the "complete, immediate, and safe opening" of the Strait of Hormuz. Trump had previously set a deadline of 20:00 EDT (00:00 GMT Wednesday), warning of severe consequences if no agreement was reached.
Iranian Foreign Minister Abbas Araghchi responded on social media, confirming Tehran's willingness to halt hostilities "if attacks against Iran are halted" and pledging to ensure safe passage through the strait. Analysts suggest Trump's decision was influenced by concerns over soaring energy prices, which could have inflicted economic damage ahead of political challenges.
"Few would risk a self-inflicted economic wound, especially with approval ratings in focus,"
Xavier Smith, Research Director at AlphaSense
Energy supply outlook remains uncertain
While the ceasefire may allow some stranded oil tankers to transit the Strait of Hormuz, analysts caution that a lasting resolution is needed for full market stability. Saul Kavonic of MST Marquee noted that Middle Eastern energy production is unlikely to resume fully until confidence in a permanent peace deal is established. Damage to regional infrastructure, including strikes on Qatar's Ras Laffan industrial hub, could take years and over $25 billion to repair, according to Rystad Energy.
Despite the conflict, some vessels have managed to navigate the strait. A Malta-flagged container ship owned by French firm CMA CGM and a Japanese natural gas carrier were among those confirmed to have passed through in recent weeks. Asian nations, including India, Malaysia, and the Philippines, have negotiated safe passage for their ships, while China acknowledged several of its vessels had crossed the strait since the conflict began.
Asia bears brunt of economic fallout
The conflict has disproportionately impacted Asian economies, many of which rely heavily on Gulf energy imports. Airlines in the region have raised fares and reduced flights due to surging jet fuel costs, while developing nations lacking refineries or oil reserves face acute shortages. Ichiro Kutani of Japan's Institute of Energy Economics welcomed the ceasefire but warned that normalizing oil prices would take time.
"The ceasefire is good news for Asian countries. If it holds, oil prices will return to normal states, though this will take time."
Ichiro Kutani, Institute of Energy Economics, Japan
What's next
The two-week truce offers a temporary reprieve, but the long-term outlook hinges on whether both sides can negotiate a lasting agreement. Energy markets will closely monitor developments, particularly the resumption of oil and gas shipments through the Strait of Hormuz and the repair of damaged infrastructure. Analysts warn that further escalation could reignite volatility, while a sustained peace deal could gradually restore stability to global energy supplies.
