Global oil prices plunged by nearly 5% on Tuesday following the announcement of a ceasefire agreement between Israel and Iran after nearly two weeks of escalating conflict. Brent crude, the international benchmark, dropped to $68 a barrel a sharp decline from the $81 peak reached during the height of tensions.
The price drop marks a significant reversal after days of uncertainty, during which markets were rattled by fears that Iran might blockade the Strait of Hormuz, a critical chokepoint for global oil and gas shipments. More than a fifth of the world’s petroleum passes through the narrow waterway, and any disruption would pose a severe threat to global energy supplies.
The ceasefire, brokered with support from the United States, was confirmed after US President Donald Trump declared it “now in effect.” Israel also confirmed its commitment to the truce, claiming it had “eliminated the Iranian nuclear threat,” referring to earlier missile strikes on Iran’s nuclear facilities.
Markets responded positively. Stock indices across Europe and Asia rose, reflecting investor optimism. The UK’s FTSE 100 edged up 0.4%, while France’s CAC-40 gained 1.4%, and Germany’s Dax surged 2%. In Asia, Japan’s Nikkei closed 1.1% higher, with Hong Kong’s Hang Seng up 2.1%.
However, oil’s retreat was tempered late Tuesday when Israel accused Iran of violating the ceasefire by launching another missile strike. This development added uncertainty, leaving analysts wary about the durability of the agreement.
“The extent to which Israel and Iran adhere to the recently announced ceasefire conditions will play a significant role in determining oil prices,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
In tandem with oil, UK wholesale gas prices also dropped sharply down 12.5% providing relief to consumers already burdened by rising energy costs.
The ceasefire may avert a repeat of the energy crisis triggered by Russia’s invasion of Ukraine in 2022, which caused a spike in global living costs. Yet, analysts caution that any flare-up could send oil prices soaring again, underlining the market’s vulnerability to geopolitical shocks.
