Oil falls below $90 as Tehran opens Strait of Hormuz
The oil price tumbled and stock markets rallied yesterday as Iran declared the Strait of Hormuz 'completely open' for the duration of a ceasefire between Israel and Lebanon.
As investors dared to hope a peace deal between the US and Tehran could be reached, Brent crude plunged as much as 13 per cent to $86 a barrel, its lowest level for more than five weeks.
Oil is now down nearly 30 per cent since its peak of close to $120 a barrel last month, but remains more than 20 per cent higher than its pre-war price of around $70.
The dive in oil prices sent markets soaring with the FTSE 100 closing up 0.73 per cent at 10,667.63 – its highest since February.
The gains on Wall Street were even more impressive with the Nasdaq and the S&P 500 rising more than 1 per cent to record highs.
On the bond markets, government borrowing cost fell, with the yield on ten-year UK gilts dropping below 4.8 per cent, having topped 5.1 per cent last month.
Falling: Oil is now down nearly 30 per cent since its peak of close to $120 a barrel last month
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Neil Wilson, a strategist at Saxo, said the reopening of the Strait was 'a massive shot in the arm' for investors but warned that 'risk remains for shooting to start again'.
The war in the Middle East, which started in February when the US and Israel attacked Iran, has effectively closed the Strait of Hormuz, a crucial waterway through which a fifth of the world's oil and liquefied natural gas is usually shipped.
It has threatened the worst oil shock in history – sending energy prices soaring and fuelling fears of runaway inflation and global recession.
Hopes of peace came after Iran's foreign minister Abbas Araqchi yesterday said the Strait would remain open to all commercial shipping for the duration of a ten-day ceasefire between Israel and Iran-backed Hezbollah in Lebanon.
The ongoing conflict between Israel and Hezbollah had complicated peace talks between the US and Iran. Donald Trump yesterday said a deal to end the war would come 'soon'.
But shipping through the Strait remains disrupted, with the reopening likely to take time.
Axel Rudolph, an analyst at IG, said: 'The reopening of the Strait of Hormuz, even on a temporary basis, has come as a huge sigh of relief to global markets, easing immediate fears around energy supply disruption with the oil price instantly dropping more than 10pc and providing a degree of stability to shipping routes.
'However, the conditional nature of the move, tied to the duration of the Lebanon ceasefire, means this is far from a permanent resolution.
'Investors will remain wary of how quickly tensions could resurface, and for now this looks more like a pause in volatility than a definitive turning point.'
Daniela Hathorn, an analyst at Capital.com, agreed that developments in the Middle East should be 'interpreted with caution given how fluid the situation has been'.
She said: 'On the surface, this is clearly positive for markets. However, the key issue is credibility and durability. The Strait has already moved between 'open' and 'restricted' multiple times during the ceasefire period' often responding to 'developments elsewhere in the region'.
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