Oil markets brace for uncertainty as US-Iran ceasefire hangs by a thread

International petroleum costs surged on Thursday as traders prepared for increased instability following a fragile two-week ceasefire between the United States and Iran that hangs in the balance. Brent oil climbed 2.2% to $96.70 per barrel, whilst US-traded West Texas Intermediate advanced 2.8% to $96.90, as traders watched the deal revealed late on Tuesday. The fragile accord, which contains measures for reopen the strategically vital Strait of Hormuz shipping route, has already been tested by fresh Israeli strikes on Lebanon that led Tehran to threaten a “regret-inducing response”. Industry analysts caution that any further deterioration could interrupt oil shipments from one of the world’s most critical shipping lanes, keeping crude prices elevated significantly higher than levels before the conflict.

Crude prices climb amid geopolitical tensions

The rise in oil prices reflects deep-seated concerns amongst traders about the durability of the ceasefire agreement. Analysts at OCBC bank emphasised that talks between Iran and the United States remain “fragile”, with the potential for swift decline should either side escalate military operations. The movement of crude has been driven primarily by concerns regarding how Tehran will manage vessel traffic through the Strait of Hormuz, a chokepoint through which approximately 20 per cent of the world’s oil passes daily. With only a small number of vessels crossing since the deal was announced—compared to the usual 130 vessels per day—significant backlogs have accumulated, and maritime tracking firms estimate it will take at least ten days to clear congestion even if standard cargo levels resume immediately.

Energy consultancy Frontier Economics cautioned that oil prices are expected to stay elevated for at least another year, given the significant harm inflicted on regional oil and gas infrastructure during the conflict. Impaired installations require extensive periods for repair and rehabilitation to complete operational capacity, creating a structural undersupply in worldwide energy markets. The uncertainty extends beyond direct supply issues; traders are closely monitoring any changes to Iran’s control systems for the strait and evaluating the probability of further military confrontations. Multiple countries, including Malaysia, India and the Philippines, have already started arranging secure transit access through the shipping channel, underscoring the extent of disturbance to worldwide shipping and energy sectors.

• Brent crude increased 2.2% to $96.70 a barrel on Thursday
• West Texas Intermediate climbed 2.8% to $96.90 amid ceasefire concerns
• Only a handful of ships transited Strait of Hormuz following deal announcement
• Minimum ten days needed to clear vessel backlog at present pace

The Strait of Hormuz remains the critical point of tension

The Strait of Hormuz has become the crucial flashpoint in assessing if the ceasefire will hold. Iran’s navy has issued explicit warnings to commercial shipping that any ships seeking to transit the waterway without permission “will be struck and sunk,” per shipping brokerage firm SSY. This threat represents a direct violation of the ceasefire agreement’s core condition—that vessels should be able to traverse safely the strait. The communications from Iran suggests deep mistrust persists despite the deal, with hardliners within the Iranian government possibly attempting to keep up pressure on international shipping to weaken the deal’s credibility and extract further concessions.

The geopolitical stakes concerning this vital shipping route cannot be overstated. Approximately one-fifth of the world’s oil transits through the Strait of Hormuz each day, making it indispensable to global energy security. Any extended interruption or fresh Iranian military strikes could spark another sharp spike in crude prices and destabilise economies worldwide. Market observers are keenly conscious that the ceasefire’s fragility hinges largely on how Iran chooses to police vessel movements through the strait. Should Tehran impose controls strictly or initiate new military strikes, the agreement could unravel within days, possibly triggering a renewed conflict that would cripple energy markets and global commerce.

Shipping congestion jeopardises worldwide energy supplies

Since the truce declaration, shipping traffic through the Strait of Hormuz has plummeted to a fraction of normal levels, with only a small number of vessels attempting the crossing compared to the pre-war average of 130 transits per day. This dramatic reduction reflects shipowners’ reluctance to risk their vessels in contested waters, even with a alleged accord in place. The resulting accumulation of waiting vessels now stretches across ports in the region, with maritime tracking firm Pole Star Global estimating that clearing existing congestion will require a at least ten days at full capacity. This gridlock threatens to compound upward price pressures on energy costs and delay critical supplies to manufacturers and consumers worldwide.

Several nations have begun pursuing independent bilateral pathways to guarantee safe passage guarantees for their vessels, underscoring the limitations of the peace agreement. Malaysia, India and the Philippines have all initiated negotiations with Iranian authorities, effectively treating the Strait of Hormuz as a contested region requiring bilateral agreements rather than a freely navigable international waterway. This division of maritime routes raises serious concerns about the peace agreement’s longevity and suggests that even if military hostilities cease, commercial damage may endure without end. The longer shipping remains gridlocked, the greater the pressure on worldwide energy sectors and the more driven stakeholders are to heighten rather than de-escalate tensions.

Ceasefire fragility tests market sentiment

The conditional fortnight ceasefire agreement, revealed ahead of President Donald Trump’s deadline on Tuesday night, has failed to settle market nerves. Instead, investors are keenly conscious of the deal’s fragile underpinnings, particularly following Israel’s recent strikes on Lebanon and Tehran’s ensuing caution of a “regret-inducing response” if attacks persist. Market strategists at OCBC bank have noted that crude prices continue to climb due to persistent suggestions that negotiations between Iran and the United States stay deeply uncertain. This fundamental weakness means that even modest geopolitical developments could spark renewed turbulence across global energy markets.

Uncertainty spreads beyond military posturing to the practical mechanics of the ceasefire itself. Traders and analysts are confronting unanswered questions about how Tehran intends to monitor and control shipping movements through the Strait of Hormuz, a vital passage through which approximately one-fifth of the world’s oil supply passes each day. Danny Price, a strategist at consultancy Frontier Economics, stresses that the relationship between Iran and the United States remains “obviously fragile,” making any abrupt policy change a distinct possibility. Additionally, deteriorated energy infrastructure across the region will demand months of repairs, suggesting that high energy costs may persist for at least another year regardless of whether the ceasefire holds.

• Brent crude climbed 2.2% to $96.70 as traders watch ceasefire stability
• Israel’s Lebanese strikes spark fresh Iranian response declarations in the coming hours
• Damaged energy sector systems will need considerable time to return to full capacity

Long-term economic consequences for energy markets

The implications of the persistent Middle Eastern tensions extend far beyond short-term price movements, with analysts forecasting continued pressure on global energy costs throughout 2025 and beyond. Even if the ceasefire holds, the substantial damage caused to oil and gas infrastructure across the region means that production capacity will remain constrained for months. This supply-side constraint, alongside the elevated geopolitical risk adjustment that investors now demand, suggests that crude prices are unlikely to retreat to pre-conflict levels in the coming months. Market participants are increasingly factoring in a revised baseline for energy prices that reflects both infrastructure damage and persistent political instability.

The wider economic consequences spread through different industries as businesses worldwide adapt to increased energy input costs. Manufacturing, transportation, and heating expenses have all grown considerably, with these rises eventually passing through to prices for consumers. Developing countries, especially those facing foreign currency constraints, face acute challenges in purchasing essential oil imports at present levels. Central banks tracking inflation pressures must now grapple with an external shock substantially outside their control, creating challenges for monetary policy decisions in Asia, Europe, and elsewhere. The convergence of these forces indicates that energy markets will continue to be a central focus for investors evaluating global economic resilience throughout the coming year.

Deteriorated infrastructure increases price upward pressure

Across the Persian Gulf, essential oil and gas processing facilities have incurred substantial harm that cannot be rapidly repaired. Refineries, pumping stations, and export terminals need extensive reconstruction and safety inspections before resuming complete operational capacity. Industry experts project that even with accelerated repair programmes, it will take a minimum of many months to restore impaired output to pre-war capacity. This capacity shortage acts as a structural floor under energy prices, preventing any steep drop regardless of near-term diplomatic progress or reduced geopolitical tensions.