Oil prices have eased back further below 80 US dollars a barrel after the US and Iran signed a deal to end the war and paved the way for the crucial Strait of Hormuz crude shipping route to be reopened.
Benchmark Brent crude fell another 2% to 77.9 dollars a barrel, having reached as low as 77.1 dollars at one stage in Thursday morning trading, after Pakistan’s prime minister Shehbaz Sharif said leaders of both the United States and Iran had signed the peace-deal agreement.
A formal signing ceremony will take place in Switzerland on Friday, but the deal comes into effect straight away and Mr Sharif, who is acting as mediator, said Iran will “instantly reopen the Strait of Hormuz and the United States of America will immediately lift the naval blockade”.
The agreement secures free passage of the strait for 60 days, with further talks due over the next two months.
Oil prices are now falling back down towards levels seen before the US-Israel war on Iran.
Brent crude stood at just under 73 dollars a barrel on February 27, the day before the conflict started.
Oil prices were sent soaring to 120 dollars a barrel at one stage as the vital Strait of Hormuz was effectively blocked, closing a shipping route that normally carries a fifth of the world’s oil and gas supplies.
But London’s stock market dropped soon after opening on Thursday, with the FTSE 100 Index down 0.7% at 10438.08 as oil and energy firms – which constitute around 10% of the index – fell due to the lower oil prices.
BP and Shell both dropped more than 1% in the blue chip share index, while British Gas owner Centrica and National Grid were also around 1% lower.
US President Donald Trump said overnight he had signed the agreement during a dinner at France’s Palace of Versailles, hosted by French President Emmanuel Macron, following a trip to the G7 summit in France.
The initial peace deal – which was first heralded by Mr Trump on Sunday as he celebrated his 80th birthday – sees Iran agree not to develop or buy nuclear weapons and requires that Iran’s highly-enriched uranium be downgraded on site as a minimum.
In return, the US will move to waive some wide-ranging sanctions against Iran, immediately allowing Iran to sell its oil freely.
Susannah Streeter, chief investment strategist at the Wealth Club, said: “The digital signing of the interim agreement between the US and Iran, ahead of an official ceremony on Friday, is exerting a fresh downward force on (oil) prices, as new supplies are expected to hit the market just as demand has been weakened by rationing and energy-efficiency measures.”
The sharp declines in the cost of crude will help ease concerns over inflation, with fuel prices already having been sent sharply higher at UK pumps and worries that energy costs would be sent rocketing throughout the winter months.
But stock markets failed to rally in response as investor attentions turned to comments last night by new US Federal Reserve chairman Kevin Warsh as rates in America were held.
His statement was seen raising the prospect of interest rate hikes in America, which took markets by surprise. The Dow Jones Industrial Average fell 1% overnight.
Chris Beauchamp, chief market analyst at IG, said: “If last night’s press conference was Warsh’s attempt to put clear blue water between him and Donald Trump, then he has succeeded.
“Far from being a rate-cut obsessive, he has taken the committee down a more hawkish path, one they seem happy to follow.”
