Oil prices dropped sharply on Tuesday by nearly 5%Â following the announcement of a ceasefire between Israel and Iran after nearly two weeks of hostilities.
Brent crude, the international benchmark, fell to $68 per barrel lower than its level prior to Israel’s missile strikes on Iran’s nuclear facilities on 13 June.
Prices had surged in recent days amid fears that Iran might blockade the Strait of Hormuz, a crucial global shipping route for oil and gas.
Global stock markets reacted positively. Indices in the UK, Europe, and Asia all rose after US President Donald Trump confirmed the ceasefire was “now in effect”, with Israel subsequently verifying its agreement to the truce.
Oil had previously soared to $81 per barrel following the strikes, fuelling concerns that rising energy costs could increase living expenses, including fuel prices and business overheads.
“If the ceasefire holds as stated, investors may expect a return to stability in the oil market,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
However, she cautioned that “the extent to which Israel and Iran respect the ceasefire conditions will significantly influence future oil prices”.
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Prices began to recover slightly after Israel accused Iran of breaching the truce by launching another missile strike.
Markets responded optimistically: the UK’s FTSE 100 rose by 0.4% in early trading; France’s CAC 40 climbed 1.4%, and Germany’s DAX added 2%. In Asia, Japan’s Nikkei ended 1.1% higher, while Hong Kong’s Hang Seng gained 2.1%.
President Trump urged both nations not to violate the ceasefire, while Israel claimed it had agreed to the deal after “eliminating the Iranian nuclear threat”.
The conflict had driven global energy prices higher, sparking fears of increased fuel bills and inflationary pressures worldwide.
On Tuesday, UK wholesale gas prices dropped by 12.5% after a recent spike. Qatar a key supplier of liquefied natural gas, which passes through the Strait of Hormuz remains central to market stability.
The tension escalated earlier when Iran launched missiles at a US base in Qatar in retaliation for American strikes on its nuclear facilities.
Analysts had warned that sustained high oil prices could drive up the cost of goods and services globally, echoing the economic fallout seen after Russia’s invasion of Ukraine three years ago.
