Oil price fell more than 10% on Friday after Iran’s foreign minister said the Strait of Hormuz would be open to all commercial maritime traffic for the duration of the ceasefire between Israel and Lebanon.
West Texas Intermediate crude prices fell more than 10% to less than $85 per barrel, while Brent crude oil prices fell more than 10% to around $89 per barrel.
The fall in oil prices comes after Iranian Foreign Minister Abbas Araghchi said the Strait of Hormuz was open to all commercial shipping for the remainder of the 10-day ceasefire between Israel and Lebanon. The ceasefire began on Thursday and the president Donald Trump told reporters the ceasefire would include Iran-backed Hezbollah.
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The war in Iran caused a slowdown in maritime traffic, leading to a shock to oil prices. (Giuseppe Cacace/AFP via Getty Images)
Trump said in a message on his Truth Social platform that the Strait of Hormuz is “FULLY OPEN AND READY FOR BUSINESS AND FULL PASSAGE, BUT THE NAVAL BLOCKAGE WILL REMAIN IN FULL FORCE AND EFFECT AS REGARDS IRAN, ONLY, UNTIL OUR TRANSACTION WITH IRAN IS 100% COMPLETE.”
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Oil prices have jumped more than $100 a barrel since Iran was began a month and a half ago, with WTI prices peaking near $113 per barrel on April 6 and Brent crude prices reaching over $119 per barrel on March 30.
Brian Therien, senior investment strategy analyst at Edward Jones, noted that “even as US restrictions on Iranian ports remain in place, oil futures are also retreating, now implying that crude prices could return towards $70 by the end of the year.”
Oil tankers pass through the Strait of Hormuz on December 21, 2018. (Reuters/Hamad I Mohammed / Reuters)
The oil price shock came after the Strait of Hormuz was effectively closed to commercial shipping amid the conflict due to the threat of Iranian attacks and mines.
The Strait of Hormuz is a key chokepoint between the Persian Gulf and the Arabian Sea, covering about a fifth of the world’s land area oil and liquefied natural gas transits the strait to destinations around the world.
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About 20% of the world’s oil supply passes through the Strait of Hormuz, off the coast of Iran. (Fox News)
A senior Iranian official told Reuters that ships transiting the strait during the ceasefire would use designated lanes that Iran deemed safe for navigation, while military vessels would be excluded from transit.
Shipping companies have expressed the need for more details on this announcement before resuming normal operations in the strait.
German shipping company Hapag-Lloyd said it was refraining from passing through the strait when evaluating the announcement, although it could begin transits soon.
The US Navy plans to continue its blockade of Iranian ports while the Strait of Hormuz reopens, Trump said. (US Navy / Handout)
Knut Arild Hareide, CEO of the Norwegian Shipowners’ Association, told Reuters that while the announcement “represents a step towards openness, it is a welcome development.”
“However, the situation remains unresolved, with a number of outstanding uncertainties, including issues related to the presence of sea mines, applicable Iranian conditions and practical implementation,” Hareide added. The Norwegian group represents 130 companies with around 1,500 vessels operating worldwide.
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The International Monetary Fund this week lowered its growth outlook for the global economy due to shipping disruptions, with emerging and developing economies hit harder than advanced economies due to the conflict.
Reuters contributed to this report.
