Oil prices collapsed by more than 5% on Tuesday after Israel confirmed it had accepted a US-brokered ceasefire proposal with Iran, defusing fears of a prolonged Middle East conflict that could have crippled global energy supplies. The announcement followed 12 days of intense hostilities between the two nations, which had driven crude prices higher on concerns over supply disruptions.
By 0650 GMT, Brent crude had fallen 5.2% to $67.75 per barrel, while West Texas Intermediate (WTI), the primary US crude benchmark, slid 5.4% to $65.01 per barrel. The sharp decline effectively erased the “war premium” that had built up in oil markets since the conflict began. “A potential end to hostilities has been warmly received by investors,” said Lee Hardman, senior currency analyst at MUFG. “Brent has now almost fully reversed its gains from the start of the conflict.”
The market’s reaction came after a turbulent Monday when prices briefly spiked. Fears had mounted that Iran might retaliate against a US strike on its nuclear facilities by targeting oil shipments through the Strait of Hormuz, a critical artery for global oil trade. However, Iran’s response—missile strikes on a US military base in Qatar—was carefully calibrated, avoiding energy infrastructure. “Tehran kept it restrained. Their ‘retaliation’ made headlines but didn’t rattle the oil market’s core,” said Stephen Innes, analyst at SPI Asset Management.
Israel’s government hailed the ceasefire as a strategic success, stating it had “achieved all objectives” in its campaign, including neutralising Iran’s “immediate dual existential threat: nuclear and ballistic capabilities.” It warned that any violation of the truce would trigger a swift and severe response. The de-escalation shifted global markets into recovery mode, with investors pivoting away from geopolitical uncertainties.
Asian stock markets spearheaded the rally. Tokyo’s Nikkei 225 closed 1.1% higher, Shanghai’s Composite Index rose 1.2%, and Hong Kong’s Hang Seng surged 2.1% by Tuesday afternoon. Seoul’s KOSPI soared 3.0%, Taipei gained 2.1%, Jakarta advanced 1.3%, and Sydney ended 1.0% up. In Europe, London’s FTSE 100 edged up 0.7%, though gains were capped by falling shares in oil majors BP and Shell. Paris’ CAC 40 climbed 1.5%, and Frankfurt’s DAX jumped 1.8%.
Currency markets also reflected the improved sentiment. The US dollar retreated from recent highs as risk appetite returned. Federal Reserve Governor Michelle Bowman indicated she would back an interest rate cut at the July meeting if inflation remains stable, bolstering expectations of a September rate reduction. “Progress in tariff talks and a less volatile economic backdrop provide room to ease policy,” she noted, contributing to the dollar’s decline, according to analyst Wan Yun.
The ceasefire’s impact extended beyond financial markets. In Australia, airline Virgin Australia saw its shares soar as it relisted on the local exchange, marking a remarkable recovery from near bankruptcy four years ago. Meanwhile, analysts warned that the Middle East truce remains fragile. “While markets are breathing a sigh of relief, any breach of the ceasefire could swiftly reignite volatility,” said Hardman.
The rapid unwinding of oil prices highlights the market’s sensitivity to Middle East developments. With the Strait of Hormuz no longer under immediate threat, focus is shifting to global demand dynamics and monetary policy. However, investors remain vigilant, aware that stability in the region hinges on both parties adhering to the ceasefire terms.
