Oil prices tumbled on Thursday and Friday, with Brent crude falling below $80 a barrel for the first time since early March, after the United States and Iran signed a 14-point memorandum of understanding to end their four-month war and reopen the Strait of Hormuz. By Friday morning in Asia, Brent traded at $78.31, down 0.68%, while West Texas Intermediate slipped to $76.14. The sell-off accelerated as several tankers, including three Saudi-flagged vessels carrying 6 million barrels of crude, transited the strait hours after the deal was signed, and Washington confirmed it had lifted its naval blockade on Iranian ports.

The interim agreement, signed remotely by President Donald Trump and President Masoud Pezeshkian on Wednesday, commits both sides to a permanent cessation of hostilities, the immediate restoration of commercial shipping through Hormuz without Iranian tolls for 60 days, and the waiver of US oil sanctions on Tehran. Analysts in London and Singapore estimate that more than 85 million barrels of crude stranded in the Gulf could now reach global markets, with Kuwait and Iraq already lifting force majeure and preparing to ramp up output. Yet the market’s supply cushion is historically thin: the International Energy Agency reports that global strategic reserves are at their lowest since 1990, the US Strategic Petroleum Reserve sits at a 43-year low, and stocks at the Cushing hub have fallen to operational stress levels. The IEA’s latest outlook projects that if Middle East flows normalise, a supply surplus of over 5 million barrels per day could emerge in 2027, but near-term restocking demand may keep a floor under prices.

The deal faces immediate political headwinds on multiple fronts. In Washington, Republican allies of Trump have questioned whether he conceded too much, noting that the president’s initial war aims—dismantling Iran’s nuclear programme, ending its missile capabilities, and curbing its regional proxies—remain unmet. Iran’s Supreme Leader Ayatollah Mojtaba Khamenei described Trump as signing “out of desperation” and warned that upcoming nuclear talks would not be easy. Tehran also signalled it will continue to manage vessel traffic through the strait via a permit system during the 60-day period. Meanwhile, Israel has continued airstrikes against Hezbollah in Lebanon, despite the MoU’s call for a permanent end to the war on all fronts. US Vice President JD Vance, who was to lead negotiations in Switzerland, pulled out of a planned trip on Friday, and publicly cautioned Israel against attacking “the only powerful ally that I have anywhere left in the entire world.”

The memorandum launches a 60-day negotiation window, extendable by mutual consent, aimed at reaching a final agreement on Iran’s nuclear programme, permanent sanctions relief, and a $300 billion reconstruction fund to be financed by regional partners rather than the US Treasury. Iran has reaffirmed it will not seek nuclear weapons and has agreed to discuss the dilution of its enriched uranium stockpile, but the text is silent on ballistic missiles and the future of Iran’s proxy networks. The immediate test is whether the ceasefire in Lebanon holds and whether tanker traffic through Hormuz returns to pre-war levels—a process that shipping executives and banks such as Goldman Sachs expect to take weeks to months, not days. The US Federal Reserve is also weighing potential interest-rate rises to contain inflation, a move that could dampen oil demand and complicate the supply recovery.