Oil Prices Plunge Over 15% as Hormuz Strait Traffic Resumes

Global oil prices experienced their largest single-day drop since the 1991 Gulf War after the U.S. and Iran agreed to a conditional two-week ceasefire, allowing the first commercial ships to transit the Strait of Hormuz since the conflict began. Brent crude futures fell roughly 16% to about $93 a barrel, while West Texas Intermediate crude, the U.S. benchmark, was down about 19% to about $92 a barrel.

Despite the sharp decline, prices remain significantly higher than the $73-a-barrel level seen before the conflict escalated at the end of February. The ceasefire's stability is "a self-inflicted economic wound that few would risk, especially given the looming pressure of approval ratings on Trump's leadership," said Xavier Smith from market research firm AlphaSense.

The de facto closure of the strait, which handles about a quarter of the world's seaborne oil trade, had sent prices soaring and cut off critical supply. Middle East producers including Saudi Arabia, the UAE, and Kuwait had shut-in a collective 7.5 million barrels per day of crude production in March. The disruption pushed the price for physical barrels of Dated Brent to a record $144.42, according to S&P Global Energy Platts.

The core of the agreement hinges on Iran allowing the "complete, immediate, and safe opening" of the strait. While the first ships have passed, including the Greek-flagged "NJ Earth" and the Liberian-flagged "Daytona Beach," the situation remains tenuous. The two-week duration of the ceasefire means uncertainty will continue to overhang the market, with questions remaining about whether shippers will have enough confidence to resume normal operations.

Strait Traffic Resumes, But Tensions Remain

Maritime data consultancy Windward reported 11 ships passing through the Strait on April 5, a figure Iran's Fars News Agency put slightly higher at 15. This is a fraction of pre-war levels, and the traffic is dominated by outbound vessels that were trapped in the Gulf. Hundreds of vessels, including 426 oil tankers, remain in the area, according to tracking site MarineTraffic.

Iran's Foreign Minister Seyed Araghchi stated that "safe passage through the Strait of Hormuz will be possible via coordination with Iran's Armed Forces." This suggests Tehran intends to maintain de facto control over the waterway, a strategic disadvantage for Gulf Cooperation Council states that depend on it. Top UAE diplomat Anwar Gargash told Reuters that "the Strait of Hormuz cannot be held hostage by any country."

A Fragile Agreement

The ceasefire followed a period of heightened rhetoric, with President Trump threatening significant escalation if a deal was not reached. The agreement, brokered by Pakistan, requires Iran to ensure safe passage, but the terms of this passage are not fully clear. It is uncertain whether Iran will exact tolls or other conditions for transit.

A potential alternative route through Omani waters is showing early signs of life, with two to four vessels using it daily since April 2. This Omani corridor follows staff talks between Oman and Iran on ensuring "smooth passage." However, analysts caution that this is a minor development compared to the massive disruption. "Only when inbound traffic [crosses] can we have any confidence in any normalization scenario," said Sparta analyst Hoa Nguyen.

This article is for informational purposes only and does not constitute investment advice.