Global oil prices continued their decline on Wednesday. Brent crude fell noticeably below $80 per barrel for the first time since early March, driven by expectations that the Strait of Hormuz could reopen.
A temporary agreement reached between the US and Iran is expected to allow passage through the strait again by the weekend. This possibility eased concerns about prolonged disruptions in energy supply from the Gulf.
Reopening of the Strait Increases Price Pressure
The strategic waterway had effectively closed following the Iran conflict that began on February 28. During this period, Brent crude approached $120 per barrel at one point, causing global prices to surge sharply.
US President Donald Trump stated on Monday that the strait would be fully reopened by Friday and would operate without transit fees. Market pricing adjusted accordingly to this expectation.
By around 7:00 AM on Wednesday, Brent crude for next month’s delivery was trading at $78.37, while the US benchmark WTI was at $75.45. At the same time, European natural gas prices fell below 42 euros per megawatt-hour.
Historic Supply Shock in Energy Markets
The International Energy Agency reported that the Iran conflict and the effective closure of the Strait of Hormuz triggered the largest supply disruption in the history of the global oil market. Brent crude, which had been above $100 in recent weeks, has dropped more than 33% in a month.
However, it is estimated that the energy sector may take months to return to full capacity. Experts highlight that significant obstacles remain in the negotiations, especially regarding Iran’s nuclear program.
On Wall Street, there is optimism that the agreement could ease the conflict fueling global inflation in the long term. Yet, uncertainty remains about how quickly production in the region will recover.
Limited Speed of Price Decline for Europe
Although Europe imports only a small amount of oil and gas directly through the strait, it has been strongly affected by the crisis. European countries import 80 to 85% of their oil needs and remain dependent on international benchmarks like Brent.
EU Energy Commissioner Dan Jørgensen said in early April that even if peace comes tomorrow, markets might not return to normal in the foreseeable future.
For prices to fall significantly across the bloc, insurance premiums for war risk and tanker freight rates must also decline. While freight rates appear to have stopped rising, there are no strong signs of a sharp drop yet.
Additionally, insurers are waiting for more evidence that the Strait of Hormuz is operating safely. Therefore, despite market relief, a lasting easing of energy prices may not come immediately.
