US-Iran Deal Prompts Muted Oil Price Reaction, Markets Await Formal Signing
Oil prices saw only a modest decline after the US and Iran announced a tentative agreement, as markets had already priced in expectations and the deal remains fragile, requiring several months for full implementation.
Early this month, oil product shipments from the Middle East region were 50% higher than the spring low. According to data from analytics firm Vortexa, average daily exports from Saudi Arabia, the UAE, and Kuwait exceeded 600,000 barrels. However, this remains a fraction of pre-war levels, when these countries supplied about four million barrels per day.
Despite oil prices hovering around $100 per barrel rather than $150 or $200, the Middle East conflict continues to weigh heavily on the global economy. Last week, the European Central Bank raised interest rates for the first time in nearly three years. Meanwhile, US inflation has hit its highest level since 2023, real wages are falling, and consumer sentiment is deteriorating. The World Bank forecasts that global economic growth this year will be the slowest in five years and the lowest since 2020.
Against this backdrop, the US-Iran announcement of a deal might have been expected to trigger a sharp drop in oil prices, but the decline on Monday morning was relatively modest. Several factors explain this muted response. First, much trading is executed by pre-programmed algorithms with undisclosed logic, and Asian trader activity alone is insufficient without support from US and European liquidity. Second, markets had already reacted to rumors of a deal on Friday. Third, the agreement itself remains fragile—its official signing is scheduled for June 19. According to Iranian media, the US will lift the maritime blockade of Iran within 30 days, followed by 60 days of negotiations on normalizing relations. Israel has not yet publicly responded.
For Latvian consumers, as for the rest of the world, the hope is that both sides will adhere to the agreed timelines and that fuel prices will continue to fall this summer, approaching levels seen at the beginning of the year.
