Oil prices plunge after Iran says Strait of Hormuz open for commercial shipping traffic

Oil prices plummeted more than 10% on Friday after Iran's foreign minister said that the Strait of Hormuz will be open to all commercial shipping traffic for the duration of the ceasefire between Israel and Lebanon.

Prices for West Texas Intermediate crude fell over 10% to under $85 a barrel, while Brent crude oil prices dropped more than 10% to around $89 a barrel.

The plunge in oil prices comes after Iranian Foreign Minister Abbas Araghchi said the Strait of Hormuz was open for all commercial vessels for the remainder of the 10-day ceasefire between Israel and Lebanon. The ceasefire began on Thursday, and President Donald Trump told reporters the ceasefire would include Iran-backed Hezbollah.

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Trump said in a post on his Truth Social platform that the Strait of Hormuz is "COMPLETELY OPEN AND READY FOR BUSINESS AND FULL PASSAGE, BUT THE NAVAL BLOCKADE WILL REMAIN IN FULL FORCE AND EFFECT AS IT PERTAINS TO IRAN, ONLY, UNTIL SUCH TIME AS OUR TRANSACTION WITH IRAN IS 100% COMPLETE."

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Oil prices surged over $100 a barrel since the Iran war began a month and a half ago, with WTI prices peaking at nearly $113 a barrel on April 6 and Brent crude prices reaching more than $119 a barrel on March 30.

Brian Therien, a senior analyst for investment strategy at Edward Jones, noted, "While U.S. restrictions on Iranian ports remain in place, oil futures markets are also retreating, now implying crude prices could move back toward the low $70s by year-end. If realized, falling oil prices should help ease headline inflation and help reduce pressure on energy-intensive sectors."

The oil price shock occurred after the Strait of Hormuz was effectively closed to commercial shipping amid the conflict due to the threat of Iranian attacks and mines.

The Strait of Hormuz is a key chokepoint between the Persian Gulf and Arabian Sea, as about one-fifth of the world's oil and liquefied natural gas transits through it to destinations around the world.

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A senior Iranian official told Reuters that ships transiting the strait during the ceasefire will travel through designated lanes that Iran deemed safe for navigation, while naval vessels will be excluded from transiting.

Shipping companies have expressed the need for more details about the announcement before resuming normal operations in the strait. 

German shipping company Hapag-Lloyd said it was refraining from passing through the strait while assessing the announcement, though it may begin transits soon.

Knut Arild Hareide, CEO of the Norwegian Shipowners' Association, told Reuters that if the announcement "represents a step towards an opening, it is a welcome development."

"However, the situation remains unresolved, with a number of outstanding uncertainties, including questions related to the presence of sea mines, applicable Iranian conditions, and practical implementation," Hareide added. The Norwegian group represents 130 companies with about 1,500 vessels operating globally.

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The International Monetary Fund lowered its growth outlook for the global economy this week due to the shipping disruptions, with emerging market and developing economies taking a bigger hit than advanced economies due to the conflict.

Reuters contributed to this report.