Oil Plummets, US-Iran Deal Cuts Hormuz Risk Premium
Oil prices fell sharply after the United States and Iran agreed to an interim deal to end months of war in the Middle East. This agreement opens the door to reopening the Strait of Hormuz and eases supply pressures that have been rocking global energy markets. Brent fell 4.7% to US$83.23/barrel, while WTI weakened 5.5% to US$80.23/barrel.
US President Donald Trump said the opening of Hormuz would be free of charge after the deal was signed on Friday. He also stated that the blockade on Iran would be lifted. Iranian Deputy Foreign Minister Kazem Gharibabadi confirmed that a deal had been reached, but the text of the agreement would only be made public after the signing ceremony in Switzerland.
The Strait of Hormuz is a key factor because under normal conditions, this waterway carries about a fifth of global oil flows. Since the outbreak of war in late February, the closure of Hormuz and the blockade of Iranian-linked shipping have hampered oil, fuel, and gas shipments from the Persian Gulf. The prospect of reopening this route has led the market to release the geopolitical risk premium that had previously boosted energy prices.
However, the restoration of oil flows will not be immediate. Market participants are still awaiting the technical details of the agreement, including mine clearance, assurance of ship security, insurance costs, and Iran's stance on ship traffic controls in Hormuz. Furthermore, several oil fields that were previously shut down could take months to return to full production.
Fundamentally, the decline in oil prices could help ease energy inflation pressures and reduce pressure on central banks to raise interest rates. However, depleted oil and energy product stocks still need to be replenished, so supply risks have not completely disappeared. The future direction of oil will depend on the official signing and implementation of the Hormuz reopening, and how quickly Persian Gulf production can recover. (asd)
Source: Newsmaker.id
