The price of crude oil has plunged almost 15% and global stock markets have rallied after the US and Iran agreed to a two-week ceasefire to negotiate a permanent end to the conflict.
Ships will be given “safe passage” through the Strait of Hormuz, said Iran’s foreign minister Abbas Araghchi, freeing up around 20% of the world’s oil supply.
The agreement came just hours before the US deadline for a ceasefire, after which president Donald Trump had threatened to annihilate Iran’s “whole civilisation”.
US oil futures dropped more than 15% to below $95 a barrel, with the Brent crude benchmark down to $93.80, and major Asian stock markets registered clear gains. Japan’s Nikkei 225 index rose 5%, and South Korea’s Kospi gained 7%.
Iran’s proximity to the strait – used to ship oil, gas and fertiliser from Kuwait, Saudi Arabia, Qatar and the UAE – has allowed it to pursue a strategy of inflicting maximum economic pain on the US and its regional allies, in retaliation for US strikes on its leadership, military and civilian infrastructure.
Targeting oil and gas facilities in the region and enforcing a near-total blockade of the Strait of Hormuz, Iran has propelled Brent crude prices up around 43% since the start of the conflict.
The FDF predicted last week that food inflation would hit over 9% in 2026 as a result of the war, or higher if no resolution was found in the next few weeks.
“As an energy-intensive industry, the current disruption to global oil and gas markets is having a direct and immediate impact on production costs for UK food and drink manufacturers,” said the FDF.
Peel Hunt analyst Kallum Pickering said: “The ceasefire arrives at a critical moment – just before our best estimate that we had about six weeks from the start of the conflict before genuine shortages would hit Europe – reducing recession risks appreciably.”
He warned, however, that even if the ceasefire marked the genuine end to fighting, some economic damage was “already baked in”.
“Expect higher inflation in the second half of the year and slower growth for major parts of the global economy compared to the pre-war outlook.”
Araghchi will lead negotiations on a 10-point proposal by Iran, which included the lifting of crippling economic sanctions, the end to hostilities between the US and Israel and Iran and its allies, and the withdrawal of US forces from all of its bases in the region.
Iran said it would take part in the talks for 15 days, and would only end the war if its proposals were recognised in a final agreement.
Posting on his Truth Social social media account, Trump said: “This will be a double sided CEASEFIRE!
“The reason for doing so is that we have already met and exceeded all Military objectives, and are very far along with a definitive Agreement concerning Longterm PEACE with Iran, and PEACE in the Middle East. We received a 10 point proposal from Iran, and believe it is a workable basis on which to negotiate.”
Trump said that “almost all of the various points of past contention have been agreed to” between the US and Iran, and the two-week period would allow a deal to be “finalised and consummated”.
Separately, he added it was a “big day for world peace”.
“Iran wants it to happen, they’ve had enough! Likewise, so has everyone else!”
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