The price of oil has tumbled and stock markets globally rallied higher after Iran declared it had reopened the crucial Strait of Hormuz shipping route.
Brent crude fell 11% to just over 88 US dollars a barrel in afternoon trading on Friday as Iranian authorities said the strait has fully reopened for commercial traffic as a 10-day ceasefire involving Israel and Lebanon came into effect.
It marks the first time the route has been fully open since the conflict between the US, Israel and Iran began on February 28, with the supply disruption sending oil prices soaring as high as 120 dollars a barrel at one stage.
Stock markets surged in response to the latest news, with the FTSE 100 index jumping more than 70 points at one stage before paring back gains to stand 0.5% or 52.48 points up at 10642.47.
In Europe, the Dax in Germany surged 1.9% and France’s Cac 40 was 2% higher, while stocks on Wall Street opened with steep gains.
The Dow Jones Industrial Average leaped 1.6% higher in early trading in the US.
Kathleen Brooks, research director at XTB, said: “This is the biggest development so far during the ceasefire, and it gives hope that the war will end soon, and supply chains will return to some normality.
“While it will take some time to relieve the backlog of tankers travelling through the Strait of Hormuz, and for Gulf commodity supplies to return to normal after damage caused by Iranian drones, this is undoubtedly good news, and it brightens the outlook for the global economy for the rest of this year.”
She added: “Of course there are risks that could see the strait close once more, but we think now that Iran has reopened the strait then the chance of them closing it again is minimal, as they also need their oil to flow through the strait to boost revenues.”
London’s FTSE 100 failed to match the gains seen elsewhere globally, with the top tier held back by falls for energy and oil stocks, which are heavily weighted on the index.
BP and Shell dropped 8% and 6% respectively, while energy firm SSE was 8% lower and British Gas owner Centrica fell by 7%.
But airlines were enjoying better fortunes on the prosect of jet fuel supply relief, with British Airways owner International Consolidated Airlines 6% higher in the FTSE 100, while Wizz Air and easyJet led the FTSE 250 gains, ahead 9% and 8% respectively.
Axel Rudolph, chief technical analyst at IG, cautioned over ongoing volatility in energy markets and among stocks.
He said: “The conditional nature of the move, tied to the duration of the Lebanon ceasefire, means this is far from a permanent resolution.
“Investors will remain wary of how quickly tensions could resurface, and for now this looks more like a pause in volatility rather than a definitive turning point.”
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