In brief
Brent crude sank more than 9% following a temporary halt in US‑Iran hostilities, reflecting market hopes for a calm in Middle‑East tensions. The pause, part of a memorandum of understanding, keeps the Strait of Hormuz open, easing fears of supply blockages. Analysts warn that the uncertainty surrounding true de‑escalation keeps oil prices volatile, while rising gas inventories and inflation pressures weigh on global markets. The development marks another chapter in the fragile oil‑price dynamics amid the ongoing conflict.
The price of oil has plunged sharply after US and Iran paused attacks, offering markets a breather amid escalating conflict.
Brent crude fell more than 9% to $87.59 a barrel at one point, a stark reversal from last week’s gains above $100.
The drop followed remarks by the US ambassador to the UN that attacks on Iran had been halted for a second night, providing "talks some space". An Iranian army spokesperson confirmed the suspension of retaliatory strikes.
The conflict originally spiked prices because the Strait of Hormuz—transporting around 20% of global crude—was closed. A June memorandum of understanding reopened the strait, dragging prices back to about $70.
The ceasefire’s collapse earlier this month reignited supply fears and pushed the price up again, toppling near $100 for the first time since May.
Market reactions
By Monday afternoon Brent traded at $90.60 a barrel, down more than 6% for the day. Susannah Streeter, chief investment strategist at Wealth Club, said markets remain cautious over the uncertainty of negotiations.
The tension still inflects other energy costs: gas prices have risen, with Wood Mackenzie reporting European gas storage at historic lows, raising doubts about winter supply security.
Higher fuel prices ripple into broader inflation, prompting central banks to consider rate hikes. The European Central Bank raised rates in June, citing inflation pressure from the conflict.
The Bank of England expects to keep its key rate unchanged at 3.75%, after earlier expectations of cuts in 2023. Markets anticipate a rate rise toward year‑end.
Why it matters
The temporary ceasefire underscores how fragile the global energy supply chain is. Any resumption of hostilities risks constricting the Strait of Hormuz, exacerbating price swings and sparking inflationary pressures across the world economy.
