West Texas Intermediate (WTI) crude slumped on Friday as shipping through the Strait of Hormuz resumed under a regional ceasefire, rapidly unwinding a hefty geopolitical risk premium that had built up in recent weeks and easing concerns over prolonged supply disruptions.
Oil prices tumble after Hormuz reopening
West Texas Intermediate (WTI) crude fell more than 9% on Friday to around $81.50 a barrel, after briefly trading above $90 earlier in the session, as the Strait of Hormuz fully reopened to commercial traffic under a regional ceasefire.
The move erased much of the geopolitical risk premium that had pushed oil sharply higher in recent weeks and pulled WTI down to an intraday low of $80.30, the weakest level since March 10. The $80 mark is once again in focus as a key psychological and technical area for the market.
Iran confirms traffic resumption through key corridor
Iranian Foreign Minister Abbas Araghchi said maritime routes in the Strait had been cleared in coordination with the Iranian Ports and Maritime Organisation. He added that the passage will remain open for the duration of the truce, following renewed calm in Lebanon.
The Strait of Hormuz is one of the world’s most important energy chokepoints. Earlier estimates by ING suggested blockades and disruptions around the waterway had affected roughly 13 million barrels per day of crude supply.
Washington maintains narrow blockade on Iran
U.S. President Donald Trump said the Strait was “open for business,” but confirmed that a targeted naval blockade remained in place against Iran until outstanding transactions are completed. He suggested that most issues between Washington and Tehran had already been resolved, framing the remaining restrictions as temporary and specific.
While the broader reopening eased supply concerns for global crude flows, the continued focus on Iran adds uncertainty to the long-term durability of the current calm.
Market rapidly unwinds geopolitical risk premium
The confirmation that shipping lanes are functioning normally reversed market expectations of prolonged restrictions in the Gulf. As commercial traffic resumed, traders quickly pared back risk premiums embedded across the oil complex.
The shift marks a sharp recalibration away from worst-case disruption scenarios that had dominated trading strategies in recent weeks. The Cboe Crude Oil ETF Volatility Index (OVX), a closely watched gauge of expected oil price swings, saw a steep drop in its futures pricing earlier in the day, mirroring the decline in perceived conflict risk.
Implications for inflation and broader markets
Lower oil prices and reduced volatility are feeding directly into short-term inflation expectations, a key input for valuing most financial assets. A sustained retreat in energy costs tends to ease pressure on central banks that have been grappling with elevated price levels.
Government bond markets will be a critical signal in the coming sessions. Yields are highly sensitive to inflation forecasts, and any downward drift would suggest that traders expect a softer stance from monetary authorities. Historically, such a backdrop has supported assets that do not generate income, as the opportunity cost of holding them falls.
Watching capital flows and positioning
Attention is now turning to how large pools of capital adjust to the new environment. Weekly fund flow data will be closely watched after recent figures showed inflows of about $1.1 billion into market products linked to easing geopolitical tension and improving inflation data. A reversal or slowdown in these inflows could indicate waning conviction in the durability of lower energy prices.
Traders in assets tied to global growth and risk sentiment are likely to focus on whether the ceasefire can be extended long enough to keep routes open and maintain uninterrupted crude flows through the Gulf.
Balancing cheaper energy against ceasefire risks
The de-escalation around the Strait of Hormuz leaves decision-makers weighing the economic benefits of cheaper, more stable energy against the fragile nature of the regional truce. Trump’s insistence on a continued, Iran-specific blockade complicates the picture, as it underscores that political risk has not disappeared, even as shipping resumes.
For now, the market is pricing in reduced disruption and lower volatility. The next phase will depend on whether the political calm holds long enough to cement the recent unwinding of the geopolitical risk premium in oil.
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