The U.S. appears close to reaching an agreement that would end the war with Iran and reopen the strategic Strait of Hormuz, according to reports Sunday, sending oil prices sharply lower.
The New York Times reported Sunday that the U.S. and Iran agreed in principle to cease hostilities and fully reopen the strait, with the issue of Iran’s nuclear materials to be negotiated later. According to the Times, U.S. officials stressed the deal was not yet finalized and still needed the approval of President Donald Trump and Iran’s supreme leader.
In a social-media post Sunday morning, Trump said that while “negotiations are proceeding in an orderly and constructive manner … I have informed my representatives not to rush into a deal in that time is on our side.” He added that the U.S. blockade on Iranian ports would continue until a deal is finalized.
Iranian officials reportedly had no immediate comment.
West Texas Intermediate crude for July delivery fell more than 4% late Sunday, to around $92 a barrel. Meanwhile, U.S. stock-index futures rose, with Dow Jones Industrial Average futures up more than 200 points, or 0.5%, late Sunday. S&P 500 futures and Nasdaq-100 futures also gained.
The Associated Press reported the deal would allow Iran to sell oil by waiving sanctions, and billions in frozen Iranian funds would be released during a 60-day negotiation period. Some Republicans have already criticized details of the potential agreement, saying it leaves Iran off too easily.
“Don’t listen to the losers, who are critical about something they know nothing about,” Trump said on social media, adding: “I don’t make bad deals!”
Despite Trump’s remarks that he’s in no hurry to end the war, many experts say the clock is ticking, and a deal needs to be made soon before further damage is inflicted on the world economy.
“The longer the world’s most important energy artery remains partially constrained, the greater the probability that this oil shock mutates from a commodity story into a broader financial crisis, feeding directly into inflation expectations, consumer strain, tighter financial conditions, and eventually recession risk,” Stephen Innes, managing partner at SPI Asset Management, said in a weekend note.
If finalized, the agreement would once again allow the free flow of oil and gas from the Persian Gulf, easing the global energy crisis that started when Iran effectively shut the Strait of Hormuz to shipping traffic shortly after the war began in late February.
Oil prices have shot roughly 70% higher since the start of the war, with West Texas Intermediate crude, the U.S. benchmark, settling Friday around $97 a barrel, while Brent crude, the global standard, closed around $100 a barrel.
Still, experts have warned that it will take months for the oil and gas industry to return to pre-war levels, as production facilities must be brought back up to speed.
“Even if the strait were to effectively open tomorrow, you can’t turn the faucet back on,” Angie Gildea, global head of oil and gas at KPMG, told MarketWatch in March. “With wells shut in and damage to natural-gas infrastructure, we’ll have longer-lasting impacts that will prop up the price of oil for at least a few months to come.”
The rising costs of energy have trickled down to nearly every part of the economy, from gas prices to shipping costs, and rising inflation fears have pushed long-term U.S. bonds yields to multi-decade highs.
