Oil prices slide after Pakistan announces US-Iran deal

Oil prices dropped in early Asian trade on Monday after Pakistan, which has been mediating an end to the US-Iran war, announced a deal that President Donald Trump said would see the reopening of the key Strait of Hormuz shipping route.

Brent crude, the global oil benchmark, fell 4% to $83.81 a barrel, while US-traded oil was down 4.7% at $80.89. Pakistan's Prime Minister Shehbaz Sharif said an official signing ceremony would be held on Friday, 19 June in Switzerland.

Iran's Deputy Foreign Minister Kazem Gharibabadi confirmed in a phone call on state TV that a deal with the US had been finalised, while Trump posted on social media to "let the oil flow!" However, Vandana Hari from energy markets analysis firm Vanda Insights said a lack of detail on what has been agreed "is likely to inject unease and uncertainty into the market." She added that this could mean a week of uncertainty and volatility for the oil market.

The strait had been effectively closed since shortly after the US and Israel launched airstrikes on Iran on 28 February. Tehran had threatened to attack vessels using the crucial waterway, through which around 20% of the world's oil and liquefied natural gas (LNG) normally passes.

Global energy markets have been volatile in recent months, with prices often rising or falling sharply in response to developments in the US-Israel war with Iran. Brent crude, which was trading at around $70 a barrel before the conflict started, peaked at about $120 during the war.

Energy market experts warned that the movement of oil through the strait is unlikely to immediately return to pre-war levels. Andrew Lipow from consulting company Lipow Oil Associates said mines would first need to be cleared from the waterway, which could take from a few weeks to up to six months. He also noted a large backlog of tankers waiting to use the waterway and that restarting oil production and getting the loading of ships back to normal levels could take weeks.

Asian stock markets rose on Monday as investors welcomed the deal. Japan's Nikkei 225 share index was 4.3% higher in morning trade, while the Kospi in South Korea was up by more than 5%. The region was hit particularly hard by higher energy prices as it is heavily reliant on the Middle East for its oil and LNG supplies.