Oil Prices Hold Near $100 as Trump Extends Iran Ceasefire but Keeps Blockade in Place
Oil prices held steady near $100 a barrel on Wednesday after US President Donald Trump announced an indefinite extension of the ceasefire with Iran, just hours before it was due to expire. However, the Strait of Hormuz remained closed, with traffic at a standstill, as Trump stated the US navy would continue blockading Iranian ports and shores.
Market Reactions and Geopolitical Tensions
Brent crude slipped 0.17 per cent to $98.27 a barrel, while US West Texas Intermediate fell 0.42 per cent to $89.29. Markets swung between gains and losses as they weighed the ceasefire extension against the continued closure of the vital waterway, through which a fifth of the world's energy supply flowed before the US and Israel launched the war on Iran.
Trump said he agreed to a request by Pakistani mediators "to hold our attack on the country of Iran until such time as their leaders and representatives can come up with a unified proposal." Initial reactions from Tehran were sceptical, with Tasnim news agency, affiliated with the Revolutionary Guard, stating Iran had not asked for a ceasefire extension and repeated threats to break the US blockade by force.
An adviser to Iran's lead negotiator suggested Trump's announcement carried little weight and could be a ploy. It remained unclear whether Iran or Israel had agreed to the new arrangement, adding to the uncertainty.
Financial Markets and Expert Analysis
Despite the geopolitical tensions, markets took the ceasefire extension largely in stride. S&P 500 futures rose 0.6 per cent and Nasdaq futures gained 0.7 per cent in Asian hours. Japan's Nikkei surged to a record high, while MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 per cent after hitting a seven-week high on Tuesday.
South Korean and Taiwanese stocks also hit record highs, driven by renewed enthusiasm for AI-related stocks. Matt Simpson, senior market analyst at StoneX, told Reuters, "It appears markets were right to assume peak war uncertainty is behind us. Risk seems likely to remain buoyant and dips viewed favourably by equity bulls. The closure of the Strait of Hormuz is already priced in."
Other experts cautioned against complacency. Vasu Menon, managing director of investment strategy at OCBC, said, "We expect markets to remain volatile for now given the uncertainty with Hormuz and because the duration and scale of the crisis remain unclear." Thomas Mathews, head of markets for Asia-Pacific at Capital Economics, noted that the earlier ceasefire had been widely seen as indefinite, making the extension unsurprising to investors. He added, "Obviously, any news on the reopening of the strait is a good candidate for the next big market flashpoint."
Broader Energy and Economic Impacts
The energy fallout from the war continued to spread globally. The European Commission is set to outline plans to cut electricity taxes and coordinate summer gas storage refills across member states, as Europe braces for what analysts say could be its second major energy crisis in four years. Europe's benchmark gas price on Tuesday was roughly a third higher than before the war began on 28 February.
Airlines warn that jet fuel shortages will likely emerge within weeks, and the EU plans to issue guidance to governments on managing potential shortfalls, recommending businesses avoid air travel where possible. Although the EU produced 71 per cent of its electricity from low-carbon sources last year, up from around 60 per cent in 2022, oil and gas remained heavily import-dependent.
The Iran crisis also impacted US economic data, with retail sales in March rising more than expected as soaring petrol prices drove a record surge in receipts at service stations. UK inflation data for March, due on Wednesday, is expected to show the rate accelerated to 3.3 per cent from 3 per cent in February, with energy prices a key driver.
Investors are closely watching quarterly earnings reports from companies like Tesla and Texas Instruments for signs of how businesses are navigating the upheaval in energy and supply chains.
Monetary Policy and Currency Movements
Kevin Warsh, Trump's nominee to lead the Federal Reserve, said at his Senate confirmation hearing that he had made no promises to the president about cutting interest rates and was committed to ensuring monetary policy "remains strictly independent." The dollar index held near 98.35, close to its highest level in a week but still down 1.5 per cent in April after rising 2.3 per cent in March.
The euro traded at $1.1744, while sterling firmed to $1.351. Gold held near $4,820 an ounce, reflecting ongoing market caution amid the geopolitical and economic uncertainties.
