Global oil prices fell sharply on Thursday, extending losses recorded earlier in the week after the United States and Iran formally signed a peace agreement aimed at ending months of conflict and reopening the strategic Strait of Hormuz to international shipping.
The development boosted optimism in global energy markets, with investors anticipating a resumption of crude exports through one of the world’s most critical maritime oil routes.
The agreement comes after more than three months of hostilities that disrupted energy supplies, heightened geopolitical tensions and contributed to inflationary pressures across several economies.
United States President Donald Trump confirmed the signing of the memorandum of understanding following a summit in Versailles, while Iranian authorities also announced that the agreement had been formally endorsed by both countries.
As part of the deal, Iran is expected to immediately reopen the Strait of Hormuz, a vital shipping channel through which roughly one-fifth of global oil supplies normally pass.
The United States, in turn, has agreed to lift its naval blockade and ease oil-related sanctions on Tehran.
Pakistan, which played a mediation role in the negotiations, said the agreement also includes plans for Washington to facilitate a $300 billion reconstruction fund for Iran, while Tehran will dilute its enriched uranium stockpile as discussions continue toward a broader long-term settlement.
The prospect of increased oil supply triggered a fresh sell-off in crude markets. Brent crude fell by 2.2 per cent to $77.83 per barrel, while West Texas Intermediate declined by 2.4 per cent to $74.98 per barrel.
The latest decline means both oil benchmarks have shed more than 15 per cent over the past week, reversing gains that had been driven by fears of prolonged disruptions in the Middle East.
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Analysts said the agreement has removed much of the geopolitical risk premium that had been built into oil prices during the conflict.
Stephen Innes, Managing Partner at SPI Asset Management, said the signing of the agreement and the anticipated reopening of the Strait of Hormuz had significantly reduced concerns over supply disruptions.
“A signed memorandum and a faster path toward reopening the Strait of Hormuz should pull some of the panic premium out of crude,” he said.
Despite the positive reaction in energy markets, investor sentiment remained mixed across global financial markets as traders assessed signals from the United States Federal Reserve regarding future monetary policy.
The Federal Reserve left interest rates unchanged at its latest policy meeting but indicated that further rate increases could be considered within the next six months if inflationary pressures persist.
Fed Chairman Kevin Warsh acknowledged that inflation remained above the central bank’s target and described high prices as a continuing burden on American households.
While some stock markets recorded gains, particularly in Asia, major indices delivered mixed performances as investors weighed the impact of higher borrowing costs against improving geopolitical conditions.
Market observers noted that although the peace deal has eased immediate concerns over oil supplies, uncertainty remains over the pace of Iran’s return to full production capacity and the long-term durability of the agreement.
Nevertheless, the accord marks a significant diplomatic breakthrough and has already begun reshaping expectations across global commodity and financial markets.