US and Iran sign interim peace deal, reopening Strait of Hormuz as oil prices tumble

Deal signed after months of war

US President Donald Trump and his Iranian counterpart signed a 14-point memorandum of understanding on Thursday, extending a ceasefire first announced in April by another 60 days so the two sides can negotiate a final truce. The agreement, mediated by Pakistan, was finalised in Versailles after the G7 summit.

As a first step, Islamic Republic of Iran will instantly reopen the Strait of Hormuz and the United States of America will immediately lift the naval blockade.

The deal defers difficult issues such as Iran's nuclear programme and requires the US and its partners to assemble a $300 billion reconstruction fund. Trump, however, said he could resume attacks and kill Iranian officials if Iran fails to honour its commitments, sending Brent briefly above $81 a barrel on Wednesday before the sell-off resumed.

Oil markets slide as supply fears ease

Crude prices extended losses after the agreement was made public. Brent futures fell more than $2 to $77.41 a barrel early Thursday, while West Texas Intermediate dropped to $74.43, the lowest levels since the first days of the war that began on 28 February. Both benchmarks have lost over 15% since talk of a deal emerged last week.

A signed MOU and a faster path toward reopening the Strait of Hormuz should pull some of the panic premium out of crude. That matters because oil was not just trading war risk. It was trading the possibility that reserve drawdowns and blocked Gulf flows would create an energy cliff.

The sell-off extended as energy markets continued to aggressively price in a faster-than-expected return of Iranian barrels following the recent US-Iran memorandum of understanding.

Strait of Hormuz reopening

Iran has effectively closed the Strait of Hormuz since late February, blocking roughly a fifth of global oil transit. The MoU requires toll-free passage through the waterway to be restored to full capacity within 30 days. More than 500 vessels are estimated to be waiting to exit the Gulf, though shipowners remain cautious.

The volume of crude returning to the market after Hormuz reopens could be limited as some cargoes already exited through workaround arrangements, while shipowners may remain reluctant to send tankers back into the region amid concerns the agreement could collapse.

The International Energy Agency warned that a successful reopening could turn this year's supply crisis into a supply glut in 2027, forecasting an oversupply of 5.05 million barrels per day.

Asian shares trade cautiously, Japan and Korea hit records

Asian equities were mostly steady, though Japan's Nikkei surged past 71,000 for the first time on strong semiconductor and AI-related shares, and South Korea's Kospi climbed above 9,000 points. US stock futures pointed higher, while overnight Wall Street fell over 1% on rate hike bets.

Major geopolitical risk persists and will also remain a major driver of market action.

Fed signals rate hikes ahead

New Federal Reserve Chair Kevin Warsh acknowledged that persistently high prices are a burden, and nine of 19 policymakers now project a rate increase later this year, a sharp shift from three months ago. The 10-year Treasury yield rose to 4.471%, and the two-year yield touched 4.1759%. The Bank of England meets on Thursday with no change expected.