Oil tumbled 4% on US-Iran interim deal to reopen Strait of Hormuz
By Florence Tan
SINGAPORE, June 15 (Reuters) - Oil prices slumped more than 4% on Monday, hitting their lowest level in three months, after U.S. President Donald Trump and Iran’s deputy foreign minister confirmed an initial agreement to halt the conflict and reopen the Strait of Hormuz, a critical chokepoint for global energy supplies.
Brent crude futures dropped $3.58, or 4.10%, to $83.75 a barrel by 0004 GMT, while U.S. West Texas Intermediate crude fell $4.01, or 4.72%, to $80.87. Both benchmarks had already lost more than 3% on Friday as expectations of a diplomatic breakthrough grew.
The deal, brokered with the help of Pakistan, is set to be formalized with a memorandum of understanding signed in Switzerland on Friday, according to Pakistan’s prime minister. Trump said on Sunday the Strait of Hormuz would be reopened “toll free” and that a U.S. naval blockade of Iranian ports would also be lifted. Iran’s semi-official Mehr news agency reported that the draft agreement calls for the waterway to be fully operational within 30 days under Iranian supervision.
The Strait of Hormuz, through which about a fifth of the world’s oil and liquefied natural gas flows, had been effectively closed for more than three months due to the war, cutting off millions of barrels of daily supply and roiling global energy markets.
“The geopolitical risk premium that had been baked into crude is now being unwound quite aggressively as traders price in the restoration of oil flows,” said Tim Waterer, chief market analyst at KCM Trade.
Investors remain cautious about how quickly Middle Eastern producers can ramp up production and exports after wartime damage, and whether enough vessels will re-enter the region. “While these uncertainties suggest upside risks to our forecast for Brent to reach $80 by year-end, it’s worth noting that oil flows through the Strait of Hormuz only need to reach 60–70% of pre-war levels to return markets to pre-war oversupply expectations,” said Vivek Dhar, commodities strategist at Commonwealth Bank of Australia.
The provisional deal includes a 60-day ceasefire period during which a more comprehensive agreement will be negotiated, Iran’s Deputy Foreign Minister Kazem Gharibabadi said. Meanwhile, the so-called E4 nations — the UK, France, Germany and Italy — announced on Sunday they are prepared to lift sanctions on Iran in exchange for steps on its nuclear program, adding another layer of complexity to the outlook.
“Given the uncertainties around the next round of negotiations over the next 60 days, particularly the nuclear dimension, it’s hard to see crude oil prices falling much further from here immediately,” said Tony Sycamore, analyst at IG.
(Reporting by Florence Tan; Editing by Jamie Freed)