Global oil prices extended their decline on Thursday after the United States and Iran signed an interim agreement to end a war that had closed the Strait of Hormuz for more than three months. The 14-point memorandum of understanding, inked by President Donald Trump and his Iranian counterpart Masoud Pezeshkian, initiates a 60-day negotiation period, reopens the strategic waterway, and waives American sanctions on Tehran’s crude exports. Brent futures fell 89 cents, or 1.12 percent, to $78.66 a barrel in early trading, while West Texas Intermediate shed 98 cents, or 1.28 percent, to $75.81. The sell-off reversed a brief rally on Wednesday, when Trump had warned he could resume bombing if Iran’s leaders “don’t behave”, and came despite the US president’s insistence at the Versailles signing ceremony that the deal was “not final”.

Viewed from Washington, the accord represents a calculated gamble. Trump, fresh from the G7 summit, framed the memorandum as a test of Iranian intentions, explicitly leaving the military option on the table. For Tehran, the agreement offers a path out of economic isolation, though Iranian state-aligned media described the conflict as an “imposed war” waged by America and Israel, underscoring the depth of mistrust that persists. The war, which erupted in February 2026, had throttled the flow of oil through Hormuz—a chokepoint for roughly a fifth of global petroleum trade—and fuelled a fresh spike in inflation that the new Federal Reserve chair acknowledged this week as “a burden for the American people”.

Energy markets, analysts in London note, are aggressively pricing in a faster-than-expected return of Iranian barrels. The International Energy Agency separately warned of a potential surge in global supplies in 2027, adding to the bearish sentiment. In Gulf capitals, the reopening of Hormuz has lifted hopes for a durable peace, yet the mood on trading floors remains cautious. The “panic premium” that had been baked into crude since the strait’s closure is unwinding, but Trump’s conditional language and the interim nature of the deal mean geopolitical risk has not been fully extinguished.

Looking ahead, the 60-day negotiation window will be decisive. Should a permanent framework emerge, Iranian crude could flood a market already bracing for oversupply, potentially driving prices lower still. However, the path is fraught with hazards: compliance disputes, regional spoilers including Israel, and the ever-present possibility that Trump reverts to a bombing campaign. For a global economy still wrestling with sticky inflation, the fate of this fragile détente will shape not only energy bills but the trajectory of interest rates and growth well into 2027.