Oil prices experienced a significant drop while stock markets saw a rise following statements from Donald Trump indicating a potential end to the conflict with Iran. The U.S. President suggested that the Strait of Hormuz would be accessible to all if Tehran agreed to a deal with Washington. On social media, Trump remarked, “Assuming Iran agrees to give what has been agreed to, which is, perhaps, a big assumption, the already legendary Epic Fury will be at an end, and the highly effective Blockade will allow the Hormuz Strait to be OPEN TO ALL, including Iran.” However, he cautioned that without a deal, military actions would escalate, stating, “the bombing starts” and it would reach a higher level of intensity.
This development came after Trump announced a temporary pause in his “Project Freedom” operation, which involved escorting ships through the strategically vital Strait of Hormuz. This waterway, responsible for transporting about 20% of the world’s oil supply, has been under Iranian blockade since late February, sparking a global energy crisis. While Trump paused operations to negotiate with Tehran, he maintained the blockade of Iranian ports. In response, Iran’s Revolutionary Guards’ Navy indicated that safe passage through the strait would be ensured with the cessation of U.S. threats and the introduction of new procedures. This was Iran’s initial reaction to the U.S. halting its operations aimed at assisting stranded ships.
The initial impact of these developments saw Brent crude oil prices, which had surged by as much as 6% earlier in the week due to Middle Eastern tensions, plummet by 11% to $97 a barrel, marking the first dip below $100 since April 22. Wholesale gas prices also saw a decline, with the British June contract falling 6.3% to 107.8p a therm. The prospect of improved international travel prospects led to a rise in airline stocks. Oil prices had been on a downward trajectory earlier on Wednesday, which accelerated following reports that the White House was nearing a one-page memorandum of understanding with Iran to end the conflict. The sources included two U.S. officials and suggested a framework for more detailed nuclear discussions was being established.
However, oil prices recovered some of their losses later in the day, trading at $101.83 a barrel, down 7.3%, as Iran dismissed the U.S. proposal as merely an “American wishlist [and] not a reality.” The statement from the Guards did not elaborate on the new procedures but expressed gratitude to shipowners and captains for complying with Iranian regulations while navigating the strait. Previously, oil prices had peaked at $126 a barrel the prior week, the highest since 2022, as Trump indicated that the U.S. blockade of Iranian ports might persist for months amid stalled peace talks.
European stock markets reacted positively on Wednesday, with the UK’s FTSE 100 index climbing by 2%, France’s Cac 40 increasing by 3%, and Germany’s Dax rising by 2.1%. The MSCI’s All-Country World Index also surged 1.6% to reach a new record, alongside similar milestones for its emerging markets benchmark and its broadest index of Asia Pacific shares outside Japan, which gained 2.5%.