After the unexpected announcement of a ceasefire between Israel and Iran, global oil markets reacted with the price of oil dropping sharply. Brent crude fell below $75 and WTI – below $70 a barrel, the lowest in months.
The rivalry between Israel and Iran, which came to a head in early spring, has been coupled with mutual attacks, cyberattacks and threats to blockade the Strait of Hormuz. Markets anticipated rising tensions, and this underpinned oil prices: investors have taken note of the potential for Middle East supply disruptions, which accounts for a great share of the world’s oil.
But on 23 June, the parties, facilitated by international mediators, agreed to a ceasefire. Although the ceasefire is still not stable, the fact of the negotiations and the reduction in tension immediately impacted on prices. Speculation risk disappeared, investors started taking profit, and this led to a fall in price.
Falling oil prices are usually viewed as a blessing for importing nations, like the EU, Japan and China. It lowers the cost of production and helps contain inflation. For oil-exporting countries, however, Russia, Saudi Arabia, Iran, and Venezuela, cheaper oil means lower export revenues and less budget strain. Against this backdrop, OPEC+ members are already contemplating the possibility of convening an extraordinary meeting to re-set production quotas.
