Oil Prices Drop 8% as US-Iran Ceasefire Sparks Hope of Strait of Hormuz Reopening

By Emmanuel Kwada

Global oil markets experienced a sharp sell-off Wednesday after the United States and Iran announced a two-week ceasefire agreement, raising expectations that the critical Strait of Hormuz could soon reopen to full oil tanker traffic and ease severe supply disruptions caused by recent hostilities.

Benchmark U.S. West Texas Intermediate (WTI) crude futures tumbled as much as 15-16% in after-hours and early trading, plunging below the $100-per-barrel mark to around $94–$96, while international Brent crude dropped about 13-14% to roughly $93–$95 per barrel.

Reports of an initial near-8% crash quickly deepened amid relief trading, with some sessions showing intraday drops approaching 20% at peaks of panic selling before partial recovery.

The dramatic decline follows President Donald Trump’s announcement late Tuesday of a conditional two-week pause in U.S. strikes on Iran.

The deal, reportedly brokered with Pakistani mediation, hinges on Tehran allowing safe and “complete” reopening of the Strait of Hormuz — the narrow chokepoint through which roughly 20% of global oil supply normally flows.

Iran has indicated it will permit passage under the temporary truce, reversing disruptions that had sent prices surging well above $110 in recent weeks.

Analysts say the ceasefire removes immediate geopolitical risk premium that had inflated prices during threats of escalated strikes on Iranian infrastructure.

“Markets are pricing in the potential return of significant volumes once tanker owners regain confidence in safe transit,” one energy trader noted. However, full resumption is not guaranteed overnight; verification, insurance concerns, and lingering uncertainties could delay a complete normalization of flows.

With the immediate war-risk premium evaporating, many forecasters now see oil prices testing lower levels in the coming weeks and months.

Pre-ceasefire projections from bodies like the U.S. Energy Information Administration (EIA) and private analysts already pointed to Brent averaging around $76–$96 for 2026 overall, with potential dips below $90 later in the year as any remaining outages ease. Some scenarios even envision averages near $80 or lower if supply surpluses reemerge.

Bank of America and others had recently adjusted 2026 forecasts upward due to Hormuz risks but now anticipate quicker relief.

A full reopening could accelerate the slide toward or below $80 per barrel as early as this month or in Q2, depending on how quickly shipping volumes ramp up and whether OPEC+ responds with production adjustments.

Still, caution prevails. The ceasefire is temporary, and longer-term peace talks remain uncertain. Any breakdown could quickly reintroduce volatility.

“This is a de-escalation, not necessarily a resolution,” warned one analyst. “The geopolitical premium may shrink, but it won’t vanish until sustained stability is proven.”

Traders will closely watch shipping data through the Strait of Hormuz in the days ahead, along with any statements from OPEC, the White House, and Iranian officials. For now, the market’s verdict is clear: reduced risk of major supply shocks is translating into sharply lower oil prices.