Oil prices extended their decline on Thursday after US President Donald Trump and Iranian President Masoud Pezeshkian signed an agreement aimed at ending months of conflict and reopening the Strait of Hormuz, a key global shipping route.
The development raised hopes that tensions between the two countries could finally ease after more than three months of fighting that disrupted energy markets and added pressure to inflation worldwide.
Trump announced the signing of the memorandum of understanding after the G7 summit in Versailles, telling reporters, “Just signed it.”
Iran also confirmed the development. Foreign Ministry spokesman Esmaeil Baqaei, quoted by state news agency IRNA, said the agreement had been finalised with the signatures of both presidents.
Attention has now shifted to the Strait of Hormuz, a strategic waterway through which about one-fifth of the world’s oil supply normally passes. Iran effectively shut the route after the outbreak of hostilities with the United States and Israel in February.
Pakistan, which helped mediate the negotiations, said the agreement provides for the immediate reopening of the strait and the lifting of the US naval blockade.
Pakistani Prime Minister Shehbaz Sharif wrote on X that, as part of the arrangement, Iran would reopen the Strait of Hormuz while the United States would remove restrictions on maritime traffic in the area.
Under the agreement, Washington is expected to ease oil-related sanctions and support the creation of a $300 billion reconstruction fund for Iran. In return, Tehran has agreed to dilute its stockpile of enriched uranium while both countries continue discussions on a broader long-term deal.
The announcement pushed oil prices lower, continuing a trend that began after reports of a possible agreement emerged last week. Both major crude benchmarks have now lost more than 15 per cent over the past week.
West Texas Intermediate crude fell 1.7 per cent to $75.47 per barrel, while Brent crude dropped 1.4 per cent to $78.42.
Stephen Innes of SPI Asset Management said the agreement and the prospect of a quicker reopening of the Strait of Hormuz had reduced the geopolitical risk premium that had been driving oil prices higher.
While lower oil prices provided some relief for investors, sentiment in broader financial markets remained mixed as traders weighed the possibility of further interest rate increases in the United States.
The US Federal Reserve left interest rates unchanged at its latest policy meeting but indicated that additional rate hikes could still be considered before the end of the year.
Fed chairman Kevin Warsh acknowledged that inflation remains above target and said high prices continue to weigh on American households, while stressing the central bank’s commitment to restoring price stability.
Market reactions were mixed across Asia. Tokyo, Seoul, Singapore, Taipei and Manila recorded gains, while Hong Kong, Shanghai, Sydney, Wellington and Jakarta closed lower.
Analysts noted that the Federal Reserve’s latest statement placed greater emphasis on inflation concerns than on employment, suggesting policymakers remain focused on bringing prices under control.
Despite the market uncertainty, the US-Iran agreement has fuelled optimism that one of the biggest geopolitical risks facing global energy markets could be easing, with investors now watching closely for the reopening of the Strait of Hormuz and the implementation of the deal’s provisions.
