Trump announces ceasefire with Iran, oil prices drop significantly

An aerial view shows a tanker near a fuel depot in Germany. Oil prices plunged by almost 15% after Donald Trump held off on his threat to bomb Iran, announcing a conditional ceasefire this week. Iran's foreign minister stated that passage through the strait of Hormuz would be allowed for the next two weeks under Iranian military management.

With just over an hour until his deadline was due to pass, Trump announced he was holding off on attacks against Iran, contingent on Tehran agreeing to a two-week ceasefire. Iran's national security council confirmed acceptance of the ceasefire, stating peace negotiations with the US would begin in Islamabad on Friday.

Brent crude oil dropped 14.4% to $93.48, while US crude oil futures sank 14.7% to $96.27 a barrel. Markets reacted positively, with Japan’s Nikkei 225 gaining over 5% and European stock markets expected to rally strongly. Jim Reid, a markets analyst at Deutsche Bank, noted, “Investors will be breathing a big sigh of relief that an off-ramp out of the war is being taken.”

However, the outcome of US-Iran talks remains uncertain, with conflicting commentary on whether the ceasefire will extend to Israel’s actions in Lebanon. Saul Kavonic, head of energy research at MST Financial, remarked that the two-week pause provides an “off-ramp for Trump’s overly bombastic ultimatum, but not yet an off-ramp for oil markets or the war.”

Charu Chanana, chief investment strategist at Saxo, emphasized that the pivotal test will be the progression of negotiations and whether insurers regain confidence for normal traffic through the strait.

What to watch: The upcoming peace negotiations in Islamabad on Friday will be crucial for determining the future of the ceasefire and oil market stability.