Archie MitchellEconomic journalist
Oil prices fell after Iran said the Strait of Hormuz would be “completely open” to commercial shipping for the remainder of the ceasefire in the U.S.-Israel war against Iran.
The cost of a barrel of Brent fell to $88 (£65) a barrel after the announcement, after being above $98 earlier on Friday.
The Strait of Hormuz is a narrow strip of water south of Iran through which a fifth of the world’s oil and liquefied natural gas is typically transported.
US President Donald Trump welcomed the Iranian statement, but shipping groups continue to verify it.
Iranian Foreign Minister Abbas Araghchi said: “The passage of all commercial ships through the Strait of Hormuz is declared completely open for the remaining period of the ceasefire. »
Global markets rallied following the announcement, with the S&P 500 index of the largest US-listed companies closing up 1.2%. The Cac indices in Paris and Dax in Frankfurt both ended the day up around 2% while London’s FTSE 100 closed up 0.7%.
The Strait of Hormuz has been effectively closed by Iran since the United States and Israel launched military strikes in the country in late February.
Tanker traffic on the waterway has slowed, significantly reducing the amount of oil and gas available on global markets and causing prices to spike.
Before the conflict, Brent crude was trading at less than $70 per barrel. It topped $100 before peaking at over $119 a barrel in March. Later Friday, it rose back to $92.
While Iran says the Strait of Hormuz is “completely open” and Trump has expressed appreciation, international maritime body BIMCO has expressed concern in its advice to operators about the continuing risks.
Jakob Larsen, BIMCO Safety and Security Manager, said: “The status of mine threats in the Traffic Separation System is unclear and BIMCO believes that shipping companies should consider avoiding the area.
“This means that the traffic separation scheme is not declared safe for transit at this stage.”
Meanwhile, the head of the International Maritime Organization (IMO) is trying to understand the details of Iran’s commitment to reopening the Strait of Hormuz, and tracking shows ship movements are minimal.
IMO Secretary General Arsenio Dominguez said on social media: “We are currently verifying the recent announcement regarding the reopening of the Strait of Hormuz, in terms of respecting freedom of navigation for all merchant ships and safe passage using the traffic separation system established by IMO.”
Sharp increases in oil prices have pushed up the price of gasoline and diesel for drivers, while raising concerns about the jet fuel supplywhich makes airlines fear having to ground their flights.
The closure of this key waterway also interrupted a main fertilizer supply lineused by farmers, raising fears of a rise in food prices due to the conflict.
A third of the world’s major chemical fertilizers pass through the strait, and prices have risen sharply since the outbreak of war.
Prices at the pump began falling Thursday and continued Friday, he said, although it remains much more expensive to fill up a tank than in February.
Iran’s statement on reopening the Strait of Hormuz follows a ceasefire agreement between Israel and Lebanon.
US President Donald Trump welcomed the move, writing on Truth Social: “IRAN HAS JUST ANNOUNCED THAT THE STRAIT OF IRAN IS FULLY OPEN AND READY FOR FULL PASSAGE. THANK YOU!”
Trump added that Iran had agreed “to never again close the Strait of Hormuz…it will no longer be used as a weapon against the world.”
But, in a follow-up article, he said the naval blockade of Iran would remain “in full force” until a permanent agreement ending the U.S.-Israeli war with that country was reached.
Despite Iran’s announcement, an oil and gas transport operator told the BBC it “doesn’t change anything” immediately.
“We don’t think we need to take unnecessary risks and our company’s approach is that we will not be the first to cross the strait,” said the operator, who wished to remain anonymous.
Another company, Stena Bulk, which operates tankers in the region, said it was “closely monitoring developments.”
“The safety of our crew and vessels governs every itinerary decision, and we will not transit until we are satisfied that we can do so safely,” the company added.
Kieran Tompkins, senior climate and commodities economist at Capital Economics, said the ceasefire, due to end in nine days, “provides only a narrow window of opportunity for oil tankers to navigate the strait, load and exit”.
“This suggests that the number of ships entering the strait may not yet return to pre-war norms, but it provides an opportunity for stuck tankers to get out,” he added.
Professor ManMohan Sodhi of Bayes Business School said consumers will continue to feel the pressure even if a longer-term peace deal is reached.
“It will take months to restore supply chains,” he said.
The fall in oil prices comes as the United States extended its waiver of Russian oil sanctions, after previously announcing it would not do so.
On Friday evening, the Treasury Department announced that it would allow the delivery and sale of Russian crude oil and petroleum products already at sea until May 16, in an effort to increase global oil supplies.
Sanctions aimed at suppressing Russia’s oil export revenue were first removed by Trump in March, as global prices soared due to the war in Iran.
The move drew criticism from European and Canadian leaders at the time, who warned it would help Putin’s regime.