Iran’s armed forces announced Monday that their missiles targeting U.S. bases in Qatar were intercepted, and no casualties were reported. This led to a sell-off in oil, as traders bet on decreased volatility from the ongoing conflict. Oil prices dropped more than 7% to settle at $68.51 per barrel, their lowest level since January.
President Donald Trump urged that keeping oil prices low would prevent aiding adversaries. “Markets only care about oil supply shocks, so as long as they stay at bay, we’ll see markets sharply higher,” said Jamie Cox, managing director at Harris Financial Group. Despite the military actions, Cox noted that the nuclear program in Iran had been significantly set back.
U.S. Secretary of State Marco Rubio called for the Chinese government to intervene to keep the Strait of Hormuz open, as China remains Iran’s most important oil customer. “While Iran has flirted with closing the Strait of Hormuz, investors aren’t terribly panicked about an oil market calamity,” wrote Adam Crisafulli of Vital Knowledge in a Monday note. Concerns over Iran disrupting global oil flows remain, but Crisafulli believes the conflict’s asymmetry and Iran’s isolation will keep the fallout contained.
U.S. crude futures settled more than 7% lower at $68.51 per barrel. Energy Secretary Chris Wright credited President Trump’s foreign policy for the perceived stability. Iran’s armed forces claimed responsibility for missile strikes on U.S. military bases in Qatar and Iraq in retaliation for the U.S. bombing of Iranian nuclear facilities.
However, Qatar’s Ministry of Defense successfully intercepted the missiles without casualties. Goldman Sachs warned that the main economic risk from the Israel-Iran war would be energy price hikes. Chief Economist Jan Hatzius noted that disruptions in energy supply could substantially affect global GDP and inflation rates.
The oil market is assuming a bearish tilt after a ceasefire was reached in the recent Iran-Israel conflict, with President Donald Trump hinting at the possibility of loosening sanctions on Iran’s crude exports. The 12-day conflict led to significant volatility in oil prices.
Oil prices slump amid ceasefire
U.S. crude oil prices surged more than 15% from the start of Israel’s air campaign against Iran on June 13. Prices peaked at a five-month high on Sunday, June 22, following the U.S.’s attack on three key nuclear sites in Iran. However, prices plunged as it became apparent that Iran’s retaliation would be measured, avoiding further escalation and not targeting regional oil supplies.
WTI fell by $14.40 per barrel, or 18%, from Monday’s high to Tuesday’s low after the ceasefire was announced. “In some ways, the market has gotten more bearish since before all this started,” Vikas Dwivedi, global energy strategist at Macquarie Group, said. “Now, maybe Iran will get to sell to China unfettered by worries of what the U.S. could do.”
Trump suggested easing U.S. pressure on Iran, stating in a social media post that China could continue buying oil from Iran.
China is the primary buyer of the 1.7 million barrels per day that Iran exports. A senior White House official said that the Iran oil sanctions remain in place. However, Trump indicated at the NATO summit in The Hague that he would not disrupt flows of Iranian crude oil, suggesting Iran needs resources to rebuild following Israel’s bombing campaign.
The future easing of oil sanctions on Iran depends on whether the ceasefire with Israel holds. The truce has been stable so far, suggesting a potential for renewed negotiations over Iran’s nuclear program, said Janiv Shah, vice president of oil market analysis at Rystad Energy. The consulting firm Rapidan Energy sees a 60% chance that the ceasefire will hold but without a formal agreement between the U.S. and Iran.
This scenario would maintain a risk premium of $2 to $3 per barrel. There is a 30% chance the truce could lead to an actual deal, which would have a bearish effect on oil prices as the market anticipates increased Iranian crude production. Deutsche Bank also expects the ceasefire to hold.
Israel has largely accomplished its goals, Iran has limited options for retaliation, and the U.S. is wary of deepening its involvement in the conflict, according to analyst Michael Hsueh. “Notwithstanding the delicate nature of the agreement, we believe that incentives are aligned for the ceasefire to hold,” Hsueh said.
