Oil markets brace for uncertainty as US-Iran ceasefire hangs by a thread

Global oil prices climbed on Thursday morning as traders prepared for continued price swings following a fragile two-week truce between the United States and Iran that remains on a knife’s edge. Brent crude climbed 2.2% to $96.70 per barrel, whilst US-traded West Texas Intermediate rose 2.8% to $96.90, as traders watched the agreement announced late on Tuesday. The fragile accord, which contains measures for restore access to the critically important Strait of Hormuz shipping route, has already been strained by new Israeli attacks on Lebanon that prompted Tehran to warn of a “response they will regret”. Market watchers caution that any further deterioration could interrupt oil shipments from a vital global shipping corridor, keeping crude prices elevated significantly higher than levels before the conflict.

Oil prices rise due to geopolitical tensions

The increase in oil prices reflects deep-seated concerns amongst traders about the durability of the ceasefire agreement. Analysts at OCBC bank highlighted that talks between Iran and the United States remain “fragile”, with the potential for rapid deterioration should either side intensify military operations. The movement of crude has been driven primarily by concerns regarding how Tehran will manage vessel traffic through the Strait of Hormuz, a critical passage through which approximately one-fifth of the world’s oil passes each day. With only a small number of vessels crossing since the deal was announced—compared to the usual 130 vessels per day—substantial queues have accumulated, and maritime tracking firms project it will take at least ten days to clear congestion even if standard cargo levels resume immediately.

Energy consultancy Frontier Economics cautioned that oil prices are likely to remain elevated for at least another year, given the significant harm inflicted on regional oil and gas infrastructure during the conflict. Damaged facilities require extensive periods for repair and rehabilitation to full capacity, creating a structural undersupply in global markets. The concerns stretch beyond direct supply issues; traders are carefully tracking any alterations in Iran’s oversight mechanisms for the strait and assessing the likelihood of further armed conflicts. Multiple countries, such as Malaysia, India and the Philippines, have already begun negotiating safe passage arrangements through the shipping channel, underscoring the severity of disruption to global shipping and energy markets.

• Brent crude up 2.2% to $96.70 per barrel on Thursday
• West Texas Intermediate climbed 2.8% to $96.90 amid ceasefire concerns
• Only a handful of ships crossed Strait of Hormuz since deal announcement
• At least ten days required to resolve vessel backlog at current rates

The Strait of Hormuz remains the key flashpoint

The Strait of Hormuz has emerged as the pivotal battleground in determining whether the ceasefire will hold. Iran’s navy has delivered clear warnings to commercial shipping that any ships seeking to transit the waterway without permission “will be struck and sunk,” per shipping brokerage firm SSY. This threat constitutes a breach of the ceasefire agreement’s core condition—that vessels should be able to traverse safely the strait. The messaging from Tehran indicates lingering distrust remains despite the deal, with hardline factions in Iran potentially seeking to keep up pressure on international shipping to undermine the agreement’s legitimacy and secure additional concessions.

The strategic political stakes surrounding this critical shipping route are impossible to overstate. Approximately a fifth of the world’s oil transits through the Strait of Hormuz daily, making it indispensable to global energy security. Any prolonged disruption or fresh Iranian military strikes could spark another steep rise in crude prices and undermine economies worldwide. Market observers are keenly conscious that the ceasefire’s vulnerability hinges primarily on how Iran chooses to police vessel movements through the strait. Should Tehran enforce restrictions aggressively or launch fresh attacks, the agreement could unravel within days, potentially sparking a fresh war that would cripple energy markets and international trade.

Shipping congestion threatens international energy distribution

Since the truce declaration, shipping traffic through the Strait of Hormuz has plummeted to a small percentage of normal levels, with only a small number of vessels attempting the crossing compared to the pre-war average of 130 daily transits. This significant decline reflects shipowners’ unwillingness to risk their vessels in contested waters, even with a alleged accord in place. The resulting backlog of waiting vessels now stretches across regional ports, with maritime tracking firm Pole Star Global estimating that resolving current congestion will require a minimum of ten days at maximum capacity. This gridlock threatens to compound inflationary pressures on energy costs and delay critical supplies to manufacturers and consumers worldwide.

Several nations have begun pursuing independent diplomatic channels to guarantee safe passage protections for their vessels, underscoring the insufficiency of the peace agreement. Malaysia, India and the Philippines have all commenced talks with Iranian authorities, effectively regarding the Strait of Hormuz as a contested zone requiring bilateral agreements rather than a unrestricted international waterway. This division of maritime routes raises significant doubts about the peace agreement’s longevity and suggests that even if military hostilities cease, commercial damage may endure without end. The longer shipping continues restricted, the greater the pressure on worldwide energy sectors and the more incentivised parties become to escalate rather than de-escalate tensions.

Ceasefire fragility challenges investor sentiment

The conditional two-week ceasefire agreement, revealed ahead of President Donald Trump’s deadline on Tuesday night, has done little to settle market nerves. Instead, investors are keenly conscious of the deal’s fragile underpinnings, particularly following Israel’s latest attacks on Lebanon and Tehran’s ensuing caution of a “regret-inducing response” if attacks persist. Market strategists at OCBC bank have noted that crude prices continue to climb due to persistent suggestions that negotiations between Iran and the United States remain fundamentally unstable. This fundamental weakness means that even modest geopolitical developments could spark renewed turbulence across global energy markets.

Uncertainty extends beyond military posturing to the operational details of the ceasefire itself. Traders and analysts are wrestling with unanswered questions about how Tehran intends to oversee and regulate shipping movements through the Strait of Hormuz, a key bottleneck through which approximately one-fifth of the world’s oil supply passes each day. Danny Price, a strategist at consultancy Frontier Economics, stresses that the relationship between Iran and the United States remains “obviously fragile,” making any unexpected shift in policy a genuine possibility. Additionally, damaged oil and gas infrastructure across the region will demand months of repairs, suggesting that increased energy prices may remain elevated for at least one more year regardless of whether the ceasefire holds.

• Brent crude climbed 2.2% to $96.70 as traders monitor ceasefire stability
• Israel’s Lebanese attacks spark fresh Iranian retaliation declarations within hours
• Damaged energy sector facilities will need considerable time to fully restore

Extended financial consequences for power sector markets

The implications of the ongoing Middle Eastern conflicts go well past short-term price movements, with analysts projecting continued pressure on global energy costs throughout 2025 and beyond. Even if the ceasefire holds, the substantial damage inflicted on oil and gas infrastructure across the region means that production capacity will continue restricted for months. This supply limitation, combined with the increased geopolitical risk adjustment that investors now require, suggests that crude prices are expected not to return to previous levels in the near term. Market participants are progressively incorporating a new baseline for energy prices that captures both material destruction and ongoing political uncertainty.

The broader economic consequences flow throughout various sectors as businesses worldwide adjust to increased energy input costs. Manufacturing, transport, and heating costs have all increased significantly, with these rises eventually passing through to retail prices. Developing nations, especially those facing foreign currency constraints, confront significant pressures in securing essential oil imports at existing levels. Central banks tracking inflation pressures must now manage an outside shock mostly beyond their control, complicating monetary policy decisions across Asia, Europe, and beyond. The confluence of these factors indicates that energy markets will remain a central focus for investors considering worldwide economic resilience over the next twelve months.

Damaged infrastructure increases cost upward pressure

Across the Gulf region, essential oil and gas production plants have sustained substantial harm that cannot be swiftly restored. Refineries, pumping stations, and export terminals need extensive reconstruction and security assessments before returning to complete operational capacity. Sector specialists project that even with expedited repair initiatives, it will take a least many months to recover impaired output to pre-war capacity. This capacity shortage acts as a underlying support under energy prices, preventing any steep drop irrespective of near-term diplomatic progress or reduced geopolitical tensions.