Source: Sharecast
The long-sought peace deal was first announced by Pakistan, which had acted as a mediator between the warring factions. Full details have not been published, but prime minister Shehbaz Sharif confirmed both sides had declared "immediate and permanent termination" of all military operations, including in Lebanon. There was no mention of Israel.
Donald Trump shortly afterwards said the Strait of Hormuz would reopen. Posting on Truth Social, the US president wrote: "I hereby fully authorise the toll free opening of the Strait of Hormuz, and, simultaneously herewith, authorise the immediate removal of the United States Naval blockade.
"Ships of the World, start your engines. Let the oil flow!"
The US first attacked Iran at the end of February, leading to the outbreak of hostilities across the region and effectively closing the Strait of Hormuz, after Iran vowed to attack ships trying to pass through it. Around 20% of the world’s oil is transported through the narrow waterway and the outbreak of hostilities sent global oil prices surging.
The US later imposed its own blockade on Iranian oil imports.
Trump also posted: "This Great Deal will bring Peace and Security to the whole Region. Many presidents have tried to make Peace with Iran, and all have failed before me. The Leaders of the Region have, for the first time, found a President who can help them achieve real Peace."
The Strait of Hormuz is unlikely to immediately reopen, as mines will need to be cleared before ships can safely resume using it. But that did not stop oil from tumbling. By 0700 BST, benchmark Brent crude oil - which had hit $120 per barrel during the height of the conflict - was trading 4% lower at $83.68 while West Texas Intermediate shed 5% at $80.82. Stock markets in Asia also rallied on the news, with the Nikkei 225 up 5%.
Oil prices have been tracking lower in recent weeks, on hopes a permanent peace deal would be secured.
The US and Iran are due to sign a memorandum of understanding on Friday in Switzerland.
Kathleen Brooks, research director at XTB, said: "The market reaction has been swift. This is good news for inflation, which should start tumbling monthly from June, and it could ease concerns about price pressures as we lead up to some major central bank action this week. The decline in oil prices also raises questions about whether the European Central Bank was too hasty in raising rates last week." The Bank of England is due to meet to discuss Bank Rate later this week.
Berenberg said: "Markets are rallying on the vibe right now but what is actually in the deal will be the critical points - and there is still plenty of fog of war surrounding terms. The agreement is not really a deal at all, or even a deal to have a deal, but rather a memorandum of understanding staking out a framework to discuss a deal over the next 60 days.
"So, at the risk of being a party pooper, could this be one of those instances of ‘buy the rumour, sell the fact’?"