(Investing) – Oil prices tumbled below $90 a barrel on Friday after Iran and the U.S. declared the Strait of Hormuz temporarily open, removing constraints on a critical shipping bottleneck that have sparked worries over a widespread inflation spike.
Investors were also assessing a media report which said the U.S. was considering a $20 billion cash-for-uranium deal to end the war with Iran.
At 09:20 ET (13:20 GMT), Brent crude futures, the global benchmark, had dived 10.1% to $89.36 a barrel, while U.S. West Texas Intermediate crude futures slumped 11.2% to $84.17 a barrel.
“In line with the ceasefire in Lebanon, the passage for all commercial vessels through Strait of Hormuz is declared completely open for the remaining period of ceasefire,” Iran’s foreign minister Abbas Araghchi said on X.
Noting the decision on social media, U.S. President Donald Trump wrote: “IRAN HAS JUST ANNOUNCED THAT THE STRAIT OF IRAN IS FULLY OPEN AND READY FOR FULL PASSAGE. THANK YOU!”
Trump previously announced on Thursday a 10-day ceasefire between Israel and Lebanon. Israel’s continued attacks on Hezbollah targets in Lebanon had been a sticking point in the overall negotiations between Iran and the U.S.
Earlier, Trump also suggested that negotiations between Washington and Tehran may resume this weekend.
The U.S. and Iran are “very close” to reaching a deal, Trump said, adding that Iran has agreed not to possess a nuclear weapon for more than 20 years. A desire to quell Iran’s nuclear ambitions has been cited by Trump as a central reason for the war, which began with joint U.S. and Israeli strikes on Iran in late February.
In return, Iran has called for the removal of international sanctions.
Trump flagged that he would consider extending a temporary ceasefire with Iran, due to expire later this month, if Washington was close to an agreement with Tehran.
Axios reported that Washington and Tehran were discussing a three-page plan to conclude the conflict, citing officials familiar with the matter. One section of the proposal included the U.S. release of $20 billion in frozen Iranian funds in return for Iran agreeing to give up its enriched uranium.
Crude remains above pre-war levels
Oil prices had already been sitting below $100 a barrel, with traders keeping tabs on hopes for a long-term peace deal. Following the outbreak of the war, crude briefly surged to as high as $120 a barrel, compared to pre-conflict levels of around $70 a barrel.
Underpinning much of the surge has been the effective closure of the Strait of Hormuz, a narrow waterway off of Iran’s southern coast through which roughly a fifth of the world’s oil squeezes. Analysts at ING have estimated that around 13 million barrels per day of oil have been disrupted by the shuttering of the strait.
The uptick has in turn sparked fears around a spike in inflation in countries around the world that could dampen global economic growth. There has been subsequent debate around the cascading impact of these trends on everything from central bank interest rate policy to gold and currencies.
Both the International Energy Agency and the Organization of Petroleum Exporting Countries warned of softer demand in the coming months, while a trickle of shipping through the Strait of Hormuz and an ongoing U.S. blockade of Iranian ports may hit supplies.
“Control of the strait remains the main flashpoint,” OCBC analysts said, flagging that U.S.-Iran negotiations could take as long as six months.
France and Britain are set to chair a meeting on Friday of roughly 40 countries which aims to signal to the U.S. that they are willing to play a part in unblocking the strait. Trump has frequently criticized other nations, including U.S. allies, for not immediately helping Washington’s efforts to reopen navigation through the chokepoint.
Meanwhile, a U.S. blockade of Iran that began earlier this week has intensified. U.S. military officials have stressed that the restrictions apply to Iran’s ports and coastline, not the Strait of Hormuz.
“It’s unclear if, and how, the U.S. blockade […] will shift Iran’s negotiating stance, but the regime is clearly now in a worse position than it was when oil exports were flowing,” said Jason Tuvey, Deputy Chief Emerging Markets Economist at Capital Economics, in a note.
(Ambar Warrick and Anuron Mitra contributed to this article)
