US and Iran reach deal to end war and reopen Strait of Hormuz, oil falls about 4 percent, Bundesbank Nagel warns supply normalization takes months
Oil fell about 4% as the US and Iran reached a deal to end their war and reopen the Strait of Hormuz, with a signing set for Friday in Switzerland. Bundesbank chief Joachim Nagel cautioned that even if the strait reopens soon, normalizing oil supply will take months.
Energy markets moved quickly on news that the United States and Iran have reached an initial deal to end their war and reopen the Strait of Hormuz, the narrow shipping lane that carries a large share of the world's seaborne oil and that Iran had effectively shut for months. According to reporting from outlets including NPR and CBC, a document signing is planned for Friday in Switzerland, the current ceasefire would be extended for 60 days, and President Trump said the strait would open with US naval pressure on Iranian ports ending. The immediate market reaction was a drop in oil prices, with Brent crude falling about 4% and US West Texas Intermediate sliding more than 4.6%. Several issues remain unresolved, including sanctions relief and the future of Iran's nuclear program, which negotiators say will be worked out during the 60-day window. European central bankers offered a more cautious read. Bundesbank president Joachim Nagel said at a finance summit in Frankfurt that even if the Strait of Hormuz becomes navigable again soon, it will take months for oil supply to return to normal, partly because production facilities in the region were damaged or taken offline. He warned that euro-zone inflation would stay elevated and did not rule out further ECB rate moves, after the central bank raised rates last week for the first time in nearly three years. ECB president Christine Lagarde welcomed the emerging agreement while stressing it still needs to be confirmed. Nagel's remarks underline why price relief may lag the diplomacy: he said normalization of oil supply would take months because some regional production was damaged or shut down. The deal still needs to be signed and key terms negotiated over the 60-day period.