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

Global oil prices climbed on Thursday morning as traders braced for further volatility in the wake of a fragile two-week truce between the US and Iran that remains on a knife’s edge. Brent oil rose 2.2% to $96.70 per barrel, whilst US-traded West Texas Intermediate advanced 2.8% to $96.90, as market participants tracked the deal revealed late on Tuesday. The tentative deal, which includes provisions for reopen the geopolitically significant Hormuz passage, has already been challenged by new Israeli attacks on Lebanon that prompted Tehran to warn of a “regret-inducing response”. Industry analysts alert investors that any intensification could jeopardise oil shipments from a vital global shipping corridor, maintaining elevated oil prices well above pre-conflict levels.

Petroleum costs rise due to regional conflicts

The rise in oil prices demonstrates fundamental worries 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 risk of rapid deterioration should either side intensify military operations. The movement of crude has been driven primarily by uncertainty surrounding how Tehran will handle 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 small number of vessels crossing since the deal was announced—compared to the usual 130 vessels per day—significant backlogs have accumulated, and maritime tracking firms estimate 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 expected to stay elevated for at least another year, given the significant harm inflicted on local energy infrastructure during the conflict. Impaired installations require extensive periods for repairs and restoration to complete operational capacity, creating a systemic shortage in worldwide energy markets. The concerns stretch beyond direct supply issues; traders are closely monitoring any changes to Iran’s control systems for the strait and evaluating the probability of further armed conflicts. Several nations, including 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 up 2.2% to $96.70 per barrel on Thursday
• West Texas Intermediate climbed 2.8% to $96.90 amid ceasefire concerns
• Only a small number of ships transited Strait of Hormuz following deal announcement
• At least ten days required to resolve vessel backlog at present pace

The Strait of Hormuz remains the critical point of tension

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 merchant vessels that any ships attempting to cross the waterway without permission “will be struck and sunk,” according to shipping brokerage firm SSY. This threat represents a direct violation of the ceasefire agreement’s core condition—that vessels should be able to safely navigate the strait. The communications from Iran suggests deep mistrust persists despite the deal, with hardline factions in Iran possibly attempting to keep up pressure on international shipping to weaken the deal’s credibility and extract further concessions.

The geopolitical stakes concerning this vital shipping route are impossible to overstate. Approximately a fifth of the world’s oil passes through the Strait of Hormuz daily, making it essential to worldwide energy stability. Any prolonged disruption or renewed Iranian military action could spark another steep rise in crude prices and undermine economies worldwide. Market observers are keenly conscious that the ceasefire’s fragility hinges primarily on how Iran chooses to police vessel movements through the strait. Should Tehran enforce restrictions aggressively or initiate new military strikes, the agreement could collapse within days, potentially sparking a renewed conflict that would cripple energy markets and global commerce.

Shipping congestion undermines global energy flow

Since the ceasefire announcement, shipping traffic through the Strait of Hormuz has plummeted to a fraction of normal levels, with only a small number of vessels attempting the crossing compared to the pre-war average of 130 daily transits. This dramatic reduction reflects shipowners’ reluctance to risk their vessels in contested waters, even with a purported agreement in place. The resulting accumulation of waiting vessels now stretches across ports in the region, with maritime tracking firm Pole Star Global estimating that clearing existing congestion will require a minimum of ten days at full capacity. This gridlock risks compound inflationary pressures on energy costs and delay critical supplies to manufacturers and consumers worldwide.

Several nations have started exploring independent bilateral pathways to guarantee safe passage protections for their vessels, underscoring the inadequacy of the ceasefire framework. Malaysia, India and the Philippines have all initiated negotiations with Iranian authorities, effectively treating the Strait of Hormuz as a contested region requiring country-to-country arrangements rather than a open access international waterway. This splintering of transit access raises troubling questions about the ceasefire’s durability and suggests that even if military hostilities cease, trade disruption may continue long-term. The longer shipping remains gridlocked, the greater the pressure on international fuel markets and the more motivated actors are to intensify rather than de-escalate tensions.

Truce fragility challenges market confidence

The conditional two-week ceasefire agreement, announced just before President Donald Trump’s deadline on Tuesday evening, has failed to settle market nerves. Instead, investors are keenly conscious of the deal’s precarious foundations, 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 keep rising due to ongoing indications that negotiations between Iran and the United States remain fundamentally unstable. This underlying fragility means that even minor regional events could trigger fresh volatility across global energy markets.

Uncertainty extends beyond military posturing to the operational details of the ceasefire itself. Traders and analysts are wrestling with unresolved queries about how Tehran intends to oversee and regulate shipping movements through the Strait of Hormuz, a critical chokepoint 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 abrupt policy change a genuine possibility. Additionally, compromised oil and gas facilities across the region will take months to fix, suggesting that elevated 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 track ceasefire durability
• Israel’s Lebanese attacks spark fresh Iranian reprisal warnings shortly thereafter
• Damaged energy sector infrastructure will need considerable time to fully restore

Extended financial consequences for energy markets

The consequences of the persistent Middle Eastern tensions reach far further than short-term price fluctuations, with analysts predicting prolonged pressure on worldwide energy prices throughout 2025 and beyond. Even if the ceasefire holds, the substantial damage inflicted on oil and gas infrastructure across the region means that supply capacity will remain constrained for months. This supply limitation, paired with the heightened geopolitical risk adjustment that investors now expect, suggests that crude prices are unlikely to retreat to pre-conflict levels in the short term. Market participants are progressively incorporating a new baseline for energy costs that captures both physical destruction and ongoing political uncertainty.

The wider-ranging economic repercussions spread through various sectors as businesses globally adapt to increased 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 securing essential oil imports at current levels. Central banks tracking inflation pressures must now manage an outside shock substantially outside their control, creating challenges for monetary policy decisions in Asia, Europe, and elsewhere. The confluence of these factors indicates that energy markets will continue to be a focal point for investors considering global economic resilience during the coming year.

Deteriorated physical assets increases price pressures

Across the Persian Gulf, critical oil and gas processing facilities have incurred significant damage that cannot be swiftly restored. Oil refineries, pump stations, and shipping terminals need extensive reconstruction and security assessments before resuming complete operational capacity. Industry experts project that even with expedited repair initiatives, it will require a minimum of several months to recover damaged capacity to pre-war capacity. This infrastructure deficit functions as a underlying support under energy prices, preventing any steep drop regardless of near-term diplomatic progress or reduced geopolitical tensions.