Global oil prices fall sharply after Trump’s US-Iran ceasefire announcement, anticipated Strait of Hormuz reopening
Updated ,first published
Prime Minister Anthony Albanese welcomed the US-Iran ceasefire and commitment to reopen Middle East shipping lanes; He said the developments could lead to a permanent end to a conflict that has cut off 20 percent of global oil supplies and caused fuel prices to rise.
“This is positive news. We have been calling for de-escalation for some time,” Albanese told Sky News.
Economists predict the war could force the Federal Reserve to raise interest rates and warn that a longer conflict could increase the risk of recession.
Sharp declines in global oil markets on Wednesday morning fueled hopes that a two-week ceasefire in Iran could be the “beginning of the end” for Australia’s record-breaking oil and diesel prices, as long as fighting continues and ships are allowed to pass through the Strait of Hormuz.
“We are already seeing the significant impacts of a war on the other side of the world, but it has an impact on Australians here, as it does on citizens all over the world,” Albanese said.
“This is very positive and we hope this will lead to a permanent de-escalation, an end to the conflict and a solution that will allow the world to move forward.”
Immediately after US President Donald Trump’s announcement, the cost of global benchmark Brent oil fell more than 15 percent to below US$91 ($130) per barrel, while West Texas Intermediate crude traded in the US was more than 16 percent lower.
The declines came after Iran effectively closed the Strait of Hormuz, a vital shipping route for oil tankers, cutting off up to a fifth of global supplies since the war began on February 28; This has increased petrol and diesel prices in Australia and around the world. The average price of petrol in Australia has reached unprecedented levels, with regular unleaded petrol reaching over $2.50 a litre.
Energy Minister Chris Bowen also welcomed the ceasefire announcement, but warned that time will tell whether normal shipping will continue in the strait.
After Albanese’s speech, Bowen said, “Let’s not get ahead of ourselves. We welcome progress, but I don’t think we can say that the Strait of Hormuz is open.” “The sooner the Strait of Hormuz is opened, the better for everyone.”
Bowen said the government was not considering an early end to the fuel excise tax cut that led to a sudden drop in oil prices last week. “This is not on our agenda. We told the Australian people for three months,” Bowen said.
Investors saw Wednesday’s ceasefire and Trump’s announcement that the deal would be subject to Iran reopening the Strait of Hormuz as the potential “exit” that energy markets were desperately seeking.
If the decline in oil prices continues and continues to fall, it will soon reach Australian petrol stations and retail prices will be reduced for consumers. Every $10-per-barrel drop in oil prices could cause the pump at the pump in Australia to fall by 10 cents per liter.
“We hope this is the beginning of the end,” said Peter Khoury, spokesman for the National Highways and Motorists Association. “But the next few days will be critical.”
Experts and officials say it takes at least seven days for any price fluctuations in global oil markets to be reflected on Australians.
But analysts and fuel industry leaders warn that the damage wrought on global energy markets over the past few weeks will outlast the conflict. Even if the Strait of Hormuz reopens and oil and refined fuel prices return from record highs, they are unlikely to return to pre-war levels for some time.
“Even if a peace agreement is reached, the market will contract 3 million to 5 million barrels per day more than pre-war expectations over the next few years due to damage to the oil and oil products export infrastructure that will take months or even years to repair,” said Saul Kavonic, energy analyst at MST Financial.
Trump had threatened to destroy Iranian civilization before backing down on Wednesday as he said the White House had received a 10-point plan that would form the basis of further negotiations.
“This will be a bilateral ceasefire!” Trump shared this on his social network. “The reason we are doing this is because we have already met and exceeded all Military objectives and are very close to a definitive Agreement on Long Term PEACE with Iran and PEACE in the Middle East.”
In response to Trump’s two-week ceasefire, Iranian Foreign Minister Seyed Abbas Araghchi announced that “safe passage through the Strait of Hormuz will be possible through coordination with the Iranian armed forces and due consideration of technical constraints.”
There was also a big change in the foreign exchange markets. For example, the Australian dollar rose by more than a percentage point. Before Trump’s post, the rate was below 70 cents, but it is now 70.6 cents.
As investors now began to focus on the effects of a possible end to the war, the value of commodities such as gold and silver increased.
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Nick Toscano is an economic correspondent for The Age and the Sydney Morning Herald.Connect with: X or email.
Shane Wright is senior economic correspondent for The Age and The Sydney Morning Herald.Connect with: X or email.
Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.Connect via email.
