US and Iran Agree to End War, Resume Strait of Hormuz Traffic

Kathmandu. International market oil prices fell to their lowest point since last March on Monday after US President Donald Trump and Iran's Deputy Foreign Minister said an initial agreement had been reached to end the war and resume traffic from the Strait of Hormuz.

As soon as this news was published, Brent crude oil price in the international market fell by $3.58 per barrel, or 4.10 percent, to $83.75 per barrel. Similarly, the price of US West Texas Intermediate (WTI) also fell by $4.01 per barrel, or 4.72 percent, to $80.87 per barrel. Earlier, on Friday, the prices of both types of oil had fallen by more than three percent.

According to the Prime Minister of Pakistan, which is playing the role of mediator, the US and Iran will sign a memorandum of understanding in Switzerland next Friday. President Trump said on Sunday that the Strait of Hormuz area would now be open without any charges and the US Navy blockade on Iranian ports would also end. According to Iran's semi-official Mehr news agency, the draft agreement mentions reopening the Strait of Hormuz within 30 days under Iranian management.

Tim Waterer, chief market analyst at KCM Trade, said that traders are beginning to assess the possibility of oil flow returning to normal, so the price of geopolitical risk added to crude oil is currently falling rapidly. The world has already lost millions of barrels of oil and gas supply as the main route, the Strait of Hormuz, which accounts for one-fifth of the world's total oil and liquid natural gas supply, has been closed for more than three months due to the war.

Investors are also carefully watching how quickly West Asian producers can resume oil production and exports after the damage caused by the war and whether more ships will enter this region. According to commodities strategist Vivek Dhar, although these uncertainties pose some risk to the forecast of Brent crude oil price reaching $80 per barrel by the end of this year, even if the oil flow from the Strait of Hormuz reaches only 60 to 70 percent compared to pre-war levels, it will be enough to bring the market back to normal.

Iran's Deputy Foreign Minister Kazem Gharabadi said that talks would be held for a broader agreement during the 60-day ceasefire period. IG market analyst Tony Sycamore noted that given the uncertainties in the next 60-day round of talks and especially regarding the nuclear aspects, the price of crude oil is unlikely to fall much further in the immediate future.