Oil prices dropped and stocks rose on Monday after the United States and Iran reached a preliminary agreement that President Trump said would reopen the Strait of Hormuz.
The details of the agreement are not yet clear. American and Iranian officials continue to make conflicting statements about its terms. Early Monday, Pakistan’s prime minister, a key mediator in the peace talks, said that the agreement covered fighting between Israel and Lebanon, but later U.S. officials said Israel’s withdrawal from Lebanon was not a condition of the agreement. And Mr. Trump had said the reopening of the strait would be “permanently toll-free,” but an Iranian official disputed that.
Restoring shipping through the strait, the strategic passageway that functions as the primary artery for oil and natural gas from the Middle East, has been among Mr. Trump’s top priorities.
The removal of the U.S. blockade — which was intended to stop the flow of Iranian oil — is just one piece of restoring shipping through the narrow waterway on Iran’s southern coast. Iran would also need to relinquish its control over ship traffic. The country’s deputy foreign minister, who confirmed the deal, said Iran’s commitments under the accord would begin on Friday.
Stocks surge.
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The S&P 500 rose 1.7 percent on Monday. Last week, the index was up less than 1 percent.
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In Europe, stocks jumped in early trading before easing through the day. The Stoxx 600, which tracks the region’s largest companies, rose 0.2 percent to a record high.
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Stocks in Asia, where countries import vast quantities of oil and gas, shot higher. Benchmark stock indexes in South Korea and Japan jumped about 5 percent, while shares in Taiwan rose nearly 3 percent.
Oil prices drop.
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The price of Brent crude, the global benchmark for oil, fell 4.8 percent to around $83.17 a barrel, extending last week’s losses on the hope that a deal would restore shipping through the strait. Brent traded at less than $73 per barrel before the first U.S.-Israeli strikes on Iran on Feb. 28.
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West Texas Intermediate crude, the U.S. benchmark, experienced a similar decline on Monday, trading down to $80.75 a barrel. That grade of crude traded at around $67 per barrel just before the start of the war.
Gasoline prices hold steady.
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U.S. gasoline prices were unchanged on Monday at a national average of $4.07 a gallon, according to the AAA motor club. Still, gas prices for drivers are up about 37 percent since the war began.
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Gas prices don’t move in lock step with crude, usually trailing increases or drops by a few days.
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The average price of diesel fell slightly to $5.20 on Monday, up about 39 percent since the start of the war.
What they are saying: Inflation is still set to rise ‘a bit further.’
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The “key question” question about the U.S.-Iran agreement is whether it succeeds in restoring energy flows through the strait, Neil Shearing, the group chief economist at Capital Economics, wrote in a research note. “The past couple of weeks has brought mounting evidence that higher energy prices are pushing up inflation and weighing on economic activity,” he noted.
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It will take some time to get oil production and refining facilities up and running, he added. A deal “will not prevent inflation from rising a bit further,” he wrote, but it means the global economy will probably avoid a recession.
Farnaz Fassihi contributed reporting.
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