Global oil prices fell around 14% on Wednesday morning, with both Brent and WTI trading below $100 per barrel after the US, Israel and Iran agreed to a two-week ceasefire.
At 7:55 AM, the June contract of Brent was trading at $95.17 per barrel, lower by 12.90% from its previous close, while the May contract of West Texas Intermediate fell 14.64% to $96.41 a barrel.
The steep correction follows weeks of elevated prices after the was blocked at the start of the war, disrupting nearly 20% of global oil and gas trade.
Trump softens
US president Donald Trump on Tuesday softened his stance and announced to deescalate the war less than two hours before the deadline he had set for Iran to comply and open up the strait of Hormuz or face a major escalation.
Describing the ceasefire as a “double-sided ceasefire”, in a social media post, Trump said that he had come to the decision “based on conversations” with Pakistan prime minister Shehbaz Sharif and army chief General Asim Munir.
In a post on his social media site, Trump said that he would suspend attacks on Iran for two weeks provided Tehran agreed “to the COMPLETE, IMMEDIATE, and SAFE OPENING” of the strait.
“The reason for doing so is that we have already met and exceeded all Military objectives, and are very far along with a definitive Agreement concerning Longterm PEACE with Iran, and PEACE in the Middle East,” Trump said.
He also said that Iran has proposed a “workable” that could help end the war.
Tehran responds
Meanwhile, Iran’s Supreme National Security Council also said that it has accepted a two-week ceasefire and that it would negotiate with the US in Islamabad starting Friday.
Iranian foreign minister Abbas Araghchi said passage through the Strait of Hormuz—which has been blocked since the start of the war—would be allowed for the next two weeks under Iranian military management.
“If attacks against Iran are halted, our Powerful Armed Forces will cease their defensive operations. For a period of two weeks, safe passage through the Strait of Hormuz will be possible via coordination with Iran’s Armed Forces and with due consideration of technical limitations,” Araghchi said in a statement on behalf of the Supreme National Security Council.
Energy relief
The ceasefire announcement and the plan to reopen the strait for two weeks comes as a relief to global energy markets, given that the channel traditionally carries about 20% of global oil and gas trade.
Around half of India’s crude oil imports used to come from through this strait before the start of the war. The closure had triggered major supply concerns globally and in India.
Given that India imports about 90% of its oil requirement, any surge in crude prices directly impacts its import bill and macroeconomic indicators.
As of 2 April, the Indian crude oil basket stood at $130.93 per barrel. The Indian basket of crude oil represents a derived basket comprising Sweet grade (Brent Dated) and Sour grade (Oman & Dubai average) crude imported by Indian refineries during each month.