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CALGARY — Oil prices fell sharply Tuesday after the United States and Iran reached a framework agreement aimed at ending months of conflict and reopening the Strait of Hormuz, easing concerns about disruptions to one of the world’s most important energy corridors.
Brent crude, the international benchmark, fell below US$80 per barrel for the first time since early March, while West Texas Intermediate crude dropped to about US$77 per barrel.
Markets reacted positively to news of a memorandum of understanding between Washington and Tehran, which is expected to be formally signed in Geneva later this week. The agreement calls for the reopening of the Strait of Hormuz and a 60-day negotiating period focused on nuclear issues, sanctions and regional security.
More than one-fifth of the world’s oil and liquefied natural gas shipments typically pass through the narrow waterway between Iran and Oman. Traffic through the strait has been severely disrupted since the conflict began in late February, contributing to higher energy prices and increased volatility in global markets.
Analysts say the prospect of oil and gas supplies returning to global markets has reduced the geopolitical risk premium built into crude prices during the conflict.
However, industry observers caution the recovery will not be immediate.
Shipping traffic remains well below pre-war levels, and vessel operators are expected to proceed cautiously as mine-clearing operations continue and details of the agreement are finalized. U.S. officials have said traffic could increase significantly over the next two weeks, but a full return to normal conditions may take months.
Prediction markets have increasingly bet on a recovery in shipping activity before the end of the year, reflecting growing confidence that the agreement will hold at least in the near term.
The deal has also improved prospects for global energy supplies, with analysts forecasting oil prices could remain below the highs seen earlier this year if exports through the Persian Gulf continue to recover.
Still, significant uncertainties remain.
Key issues, including the future of Iran’s nuclear program, sanctions relief, frozen Iranian assets and long-term arrangements governing passage through the Strait of Hormuz, have yet to be resolved.
Questions also remain about regional security, including tensions involving Israel and Iranian-backed groups across the Middle East.
Not everyone in Iran is convinced the agreement will lead to lasting peace.
Interviews with residents published by international media outlets reflected a mix of relief and skepticism, with some expressing doubts that either side will fully implement the deal or reach a permanent settlement.
While financial markets in Iran have responded positively, with the national currency strengthening and stock prices rising, many observers view the agreement as a first step rather than a final resolution.
For now, energy markets appear focused on the immediate impact: the prospect of more oil reaching global buyers and reduced risks to one of the world’s most strategically important shipping routes.
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