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

Global oil prices surged on Thursday as traders girded themselves for continued price swings following a tenuous 14-day ceasefire between the US and Iran that teeters on the brink. Brent crude climbed 2.2% to $96.70 per barrel, whilst WTI rose 2.8% to $96.90, as traders watched the deal revealed late on Tuesday. The preliminary agreement, which includes provisions for restore access to the critically important Hormuz passage, has already been challenged by fresh Israeli strikes on Lebanon that prompted Tehran to warn of a “response they will regret”. Industry analysts caution that any escalation could disrupt oil shipments from one of the world’s most critical shipping lanes, maintaining elevated oil prices significantly higher than levels before the conflict.

Petroleum costs rise amid geopolitical tensions

The rise in oil prices demonstrates deep-seated concerns amongst traders about the durability of the ceasefire agreement. Analysts at OCBC bank emphasised that talks between Iran and the United States remain “fragile”, with the potential for rapid deterioration should either side escalate military operations. The oil flow has been driven primarily by concerns regarding how Tehran will manage vessel traffic through the Strait of Hormuz, a critical passage through which approximately 20 per cent of the world’s oil passes daily. With only a handful of ships crossing since the deal was announced—compared to the usual 130 vessels per day—significant backlogs have accumulated, and maritime tracking firms project it will take at least ten days to resolve delays even if normal shipping volumes resume immediately.

Energy consultancy Frontier Economics cautioned that oil prices are expected to stay elevated for at least another year, given the substantial damage inflicted on regional oil and gas infrastructure during the conflict. Damaged facilities require extensive periods for repairs and restoration to full capacity, creating a structural undersupply in global markets. The uncertainty extends beyond immediate supply concerns; traders are carefully tracking any alterations in Iran’s oversight mechanisms for the strait and evaluating the probability of further military confrontations. Several nations, such as Malaysia, India and the Philippines, have already started negotiating safe passage arrangements through the waterway, underscoring the severity of disruption to global shipping and energy markets.

• Brent crude increased 2.2% to $96.70 a barrel on Thursday
• West Texas Intermediate climbed 2.8% to $96.90 due to ceasefire concerns
• Only a handful of ships crossed Strait of Hormuz following deal announcement
• Minimum ten days required to resolve vessel backlog at current rates

The Strait of Hormuz continues to be the key flashpoint

The Strait of Hormuz has become the crucial flashpoint 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 safely navigate the strait. The messaging from Tehran suggests deep mistrust persists despite the deal, with hardline factions in Iran possibly attempting to keep up pressure on global maritime traffic to undermine the agreement’s legitimacy and secure additional concessions.

The strategic political stakes concerning this critical shipping route are impossible to overstate. Approximately one-fifth of the world’s oil transits through the Strait of Hormuz daily, making it indispensable to worldwide energy stability. Any prolonged disruption or renewed Iranian military action could trigger another sharp spike in crude prices and destabilise economies worldwide. Market observers are keenly conscious that the ceasefire’s vulnerability hinges largely on how Iran decides to monitor vessel movements through the strait. Should Tehran enforce restrictions aggressively or launch fresh attacks, the agreement could unravel within days, possibly triggering a fresh war that would devastate energy markets and global commerce.

Maritime delays jeopardises worldwide energy supplies

Since the truce declaration, shipping traffic through the Strait of Hormuz has dropped sharply to a small percentage of normal levels, with only a handful of vessels attempting the crossing compared to the pre-war average of 130 transits per day. This significant decline reflects shipowners’ unwillingness to risk their vessels in contested waters, even with a purported agreement 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 full capacity. This gridlock risks compound inflationary pressures on energy costs and hold up essential goods to manufacturers and consumers worldwide.

Several nations have initiated independent negotiation routes to obtain safe passage protections for their vessels, underscoring the limitations of the truce structure. Malaysia, India and the Philippines have all initiated negotiations with Iranian authorities, effectively treating the Strait of Hormuz as a contested zone requiring country-to-country arrangements rather than a open access international waterway. This fragmentation of shipping access raises serious concerns about the truce’s sustainability and suggests that even if military hostilities cease, economic disruption may continue long-term. The longer shipping remains gridlocked, the greater the pressure on worldwide energy sectors and the more incentivised parties become to escalate rather than de-escalate tensions.

Ceasefire fragility tests investor sentiment

The conditional two-week ceasefire agreement, revealed ahead of President Donald Trump’s deadline on Tuesday evening, has done little to settle market nerves. Instead, investors are keenly conscious of the deal’s fragile underpinnings, particularly in the wake of Israel’s recent strikes 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 ongoing indications that negotiations between Iran and the United States stay deeply uncertain. This fundamental weakness means that even minor regional events could spark renewed turbulence across global energy markets.

Uncertainty extends beyond military posturing to the practical mechanics of the ceasefire itself. Traders and analysts are confronting unresolved queries about how Tehran intends to oversee and regulate shipping movements through the Strait of Hormuz, a vital passage 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 real prospect. Additionally, compromised oil and gas facilities across the region will demand months of repairs, suggesting that high energy costs may persist for at least another year regardless of whether the ceasefire holds.

• Brent crude increased 2.2% to $96.70 as traders watch ceasefire stability
• Israel’s Lebanese attacks spark fresh Iranian retaliation warnings shortly thereafter
• Damaged regional energy infrastructure will take months to restore fully

Extended financial effects for energy markets

The effects of the persistent Middle Eastern conflicts go well past immediate price swings, with analysts predicting continued pressure on international fuel costs throughout 2025 and beyond. Even if the ceasefire holds, the substantial damage inflicted on oil and gas infrastructure across the region means that output levels will stay limited for months. This supply limitation, paired with the increased geopolitical risk margin that investors now require, suggests that crude prices are expected not to return to earlier prices in the coming months. Market participants are increasingly factoring in a revised baseline for energy prices that captures both material destruction and persistent political instability.

The wider economic repercussions spread through multiple sectors as businesses globally respond to higher energy input costs. Production, logistics, and heating expenses have all grown considerably, with these rises eventually passing through to retail prices. Developing nations, especially those with constrained foreign exchange reserves, confront significant pressures in purchasing essential oil imports at present levels. Monetary authorities assessing inflation pressures must now grapple with an external disruption mostly beyond their control, making monetary policy decisions more complex throughout Asia, Europe, and other regions. The confluence of these factors indicates that energy markets will remain a central focus for investors evaluating international economic strength during the coming year.

Deteriorated infrastructure amplifies cost pressures

Across the Persian Gulf, critical oil and gas production plants have sustained substantial harm that cannot be rapidly repaired. Oil refineries, pump stations, and shipping terminals need extensive reconstruction and security assessments before returning to complete operational capacity. Sector specialists project that despite accelerated repair programmes, it will take a least several months to restore damaged capacity to pre-war capacity. This capacity shortage acts as a structural floor beneath energy prices, preventing any steep drop regardless of near-term diplomatic progress or lowered regional tensions.