Oil prices continued to decline in early trade on Thursday following the signing of an interim agreement between the United States and Iran, aimed at ending the Iran war, reopening the Strait of Hormuz, and waiving US sanctions on Tehran’s oil. This move is considered a step toward resolving what has been described as one of the largest energy supply disruptions in history.
Current Oil Prices
Around 7 am IST, West Texas Intermediate (WTI) crude was trading at $76.10 per barrel, down 0.69 or 0.90%, while Brent crude stood at $78.86 per barrel, down 0.69 or 0.87%. On Wednesday, WTI crude had been priced at $76.46 per barrel, and Brent crude at $79.41 per barrel.
Details of the Agreement
The proposed framework aims to restore conditions to the pre-war status quo. The 14-point memorandum between the two countries marks the beginning of a 60-day negotiation period. During this time, Iran will permit toll-free passage through the Strait of Hormuz, a vital shipping route for global oil and gas. Additionally, the agreement sets out plans for traffic through the strait to be restored to full capacity within 30 days.
Unresolved Issues
However, the preliminary accord leaves several major issues unresolved, including Iran’s nuclear programme. It also requires the United States and its partners to prepare a $300 billion financing plan to support Iran’s economic recovery.
Trump’s Warnings
While announcing the deal, US President Donald Trump warned that attacks could resume and Iranian officials could be targeted if Tehran fails to uphold its commitments. Speaking at the G7 summit in France, Trump also appeared to soften one of the justifications he had previously cited for military action against Iran, stating that it would be "unfair" for Tehran not to possess ballistic missiles, despite earlier pledges to eliminate them.
Potential Market Impact
If the agreement is successfully implemented and the Strait of Hormuz reopens, the International Energy Agency (IEA) has previously warned that the current supply crisis could shift into a major surplus by 2027. In its monthly market report, the agency projected that global supply could exceed demand by 5.05 million barrels per day next year as Middle Eastern oil returns to the market.
Since the announcement of the peace deal, both benchmark crude prices have fallen by over 5%, hitting three-month lows amid expectations that a US-Iran deal could restore oil flows through the Strait of Hormuz.
Background
The peace deal comes after more than four months since the US and Israel launched joint strikes on Iran, after which Iran tightened its control over the Strait of Hormuz, squeezing energy supplies globally. The disruption pushed fuel prices higher, with crude touching $126 as the conflict raged on.
