U.S. Crude plunged more than 16% on Wednesday.

Markets swoon after ceasefire announcement

Oil prices tumbled sharply on Wednesday after President Donald Trump said Washington and Tehran had agreed to a two‑week ceasefire and a framework to reopen the Strait of Hormuz. U.S. West Texas Intermediate for May delivery closed down about 16.4% at $94.41 a barrel, its biggest one‑day drop since April 2020. Brent for June delivery settled roughly 13.3% lower at $94.75 a barrel.

Trump described the pause as conditional on Iran agreeing to a "complete, immediate and safe opening of the Strait of Hormuz", writing that Washington had received a 10‑point proposal from Tehran that provided "a workable basis for negotiations". He added that a two‑week window would allow the pact to be finalised.

Iranian Foreign Minister Seyed Abbas Araghchi confirmed that Tehran would permit safe passage through the strait during the ceasefire, saying the move would be coordinated with Iran's armed forces and would take technical limits into account. "If attacks against Iran are halted, our Powerful Armed Forces will cease their defensive operations," Araghchi wrote.

Ceasefire calm is fragile at best

The ceasefire didn't instantly bring tanker traffic back to normal — ships were still moving cautiously through the strait. Data from ship‑tracking services showed only a handful of tankers moving through the Strait of Hormuz on Wednesday.

S&P Global Market Intelligence recorded as few as four transits that day, down from higher counts earlier in the week.

"We may just see 10‑15 [vessels] given that Iran is still vetting who goes through: that would be a similar pace to that seen in recent days," said Matt Smith, oil analyst at Kpler. Tomer Raanan, maritime risk analyst at Lloyd's List, warned that normalisation was unlikely within the two‑week window and noted the wider disruption to shipping and oil infrastructure.

Shipowners also face real, practical problems that a diplomatic note doesn't solve. Insurers have largely avoided underwriting Gulf voyages since attacks hit oil infrastructure, and reports say Tehran may demand crypto tolls for transits — a fee that would make insurance and contracts even harder to sort out.

Stocks rally even as risks remain

Equity markets responded strongly to the ceasefire. U.S. Benchmark indices closed higher: the S&P 500 rose around 2.5%, the Nasdaq gained roughly 2.8% and the Dow recorded its largest single‑day point gain in months, jumping more than 1,300 points. The move reflected investor relief that a sharp escalation in the Middle East might have been averted, at least temporarily.

Mastheads

But some market strategists urged caution. Krishna Guha, Evercore vice chairman and head of economics, wrote in a memo that the ceasefire could still fall apart and that the initial spike in inflation from the conflict wouldn't disappear immediately. "We aren't out of the woods yet," he said.

Neil Roberts, head of the Lloyd's Market Association, put it more bluntly: "Time will tell whether it's a pause or a peace." He added that trade flows were unlikely to resume to normal immediately even if the diplomatic window holds.

Why the Strait of Hormuz still matters

The Strait matters because about a fifth of seaborne oil moves through it — any sign of disruption sends prices and traders into a spin. Around one‑fifth of the world's seaborne oil flows through the narrow waterway, making any sensible hint of closure deeply disruptive to global supply and pricing.

Even if diplomats agree to a pause, logistics and insurance hurdles won't disappear overnight. Tanker captains, shipowners and insurers have to weigh the legal and commercial risks of transiting a corridor where attacks and military actions have already damaged infrastructure and prompted production cuts. In that environment, a diplomatic note granting safe passage is only the first step.

Implications for Britain

Falling oil prices will be welcome in London. Lower crude tends to reduce wholesale fuel and fuel‑related energy costs, which can take some pressure off headline inflation and on petrol prices at the pump. That, in turn, may ease some of the near‑term political pressure on ministers over household bills.

Still, the effect on the UK depends on how sustained the price fall is. A two‑week pause in hostilities or a temporary opening of transit routes may ease immediate supply fears, but the shipping, insurance and production disruptions already in place mean British consumers and businesses could see only gradual relief.

UK‑listed energy firms that have benefited from higher oil prices will face renewed volatility in their share prices. Banks and pension funds with exposure to energy and shipping also saw positions revalue as markets swung, contributing to the sharp moves in equity indices.

What to watch next

Traders and policymakers will be looking for concrete indicators that the accord is being implemented. Key signals include a steady rise in tanker transits through the strait, explicit commitments from Iran on tolls and coordinating mechanisms, and clear messages from maritime insurers about risk premia for Gulf voyages.

What happens on the battlefields across the region will matter too — strikes beyond Hormuz can quickly lift oil risk again. Reports of continued strikes elsewhere — including Israeli operations in Lebanon and separate incidents that have struck oil infrastructure — mean a diplomatic agreement limited to the Hormuz corridor doesn't end the broader risk to energy supplies.

Traders will watch to see if risk premiums actually fall for good or just dip for a day and then rebound. Several bank trading desks said the market rally might have legs if the truce holds and tankers start moving again. Others warned that temporary relief often invites a return to headline‑driven trading if any party signals a reversal.

Chris Larkin, managing director for trading and investing at E‑Trade from Morgan Stanley, said the market had "woken up to some potentially good news" but noted the need for tangible follow‑through on the diplomatic front. JPMorgan strategists added that if participants treat the ceasefire as genuine, there was scope for further gains in equities.

At the same time, central banks and fiscal authorities will be watching commodity prices as an input to inflation. A sustained fall in crude would ease one upward pressure on consumer prices, but analysts say the initial inflationary shock from the conflict is already embedded in some supply chains and budgets.

Short of a durable peace, producers and traders will keep contingency plans active. Ship operators will monitor insurance markets closely. Energy firms will keep production adjustments under review. And governments — including the UK — will keep diplomatic and military channels under high alert while assessing the economic fallout.

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U.S. Crude oil closed down about 16.4% at $94.41 a barrel on Wednesday.

This article was created with AI assistance.