Oil prices drop and stocks enjoy cautious rally on US-Iran peace progress

There is cautious optimism on financial markets that a US-Iran peace deal will ease the hit to the global economy caused by their war.

Confirmation late on Sunday that an agreement had been reached to end the conflict of three-and-a-half months saw Brent crude oil prices tumble at the start of trading in Asia, building on declines seen last week.

The international benchmark tumbled by more than 4% to $83 a barrel - just $11 higher than the level seen before the US-Israeli attacks on Iran began at the end of February.

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Stock markets, weighed down by months of war-linked uncertainty, also rose.

The Nikkei in Japan, for example, was more than 5% up at one stage in a broad-based relief rally - as was the Kospi in South Korea.

Both nations are big energy importers. Other major indices saw more cautious gains.

In London, the internationally-focused FTSE 100 opened 0.8% up, with oil majors dragging on wider optimism, but the early gains stuttered through the morning to leave the index flat at lunchtime.

Financial market analysts cautioned that while there was obvious relief the war may be over, details of the peace plan were in short supply.

Donald Trump has said he is halting the US blockade of Iran and that the Strait of Hormuz will be open and tariff-free.

For its part Tehran, which had previously demanded tolls, said it would retain control of the vital shipping route, along with Oman.

Any toll would undermine the freedom of the seas principle of international law, which is essential to global supply chains.

It is also not clear whether shipowners will risk their vessels in the strait without protection, or how much insurance might cost.

The waterway usually handles about a fifth of the world's oil and natural gas supplies.

It is understood that more regular shipments through the strait could resume from Friday - the day the peace deal is scheduled to be signed.

Volumes, however, are expected to be significantly down due to the fact that energy infrastructure has been severely damaged across Gulf nations.

Some tankers have got through the contested shipping lane over the past month but most have not taken the risk.

The status of the strait and Iran's nuclear programme could yet prove to be among potential stumbling blocks as the clock ticks down to the peace deal being signed.

Ipek Ozkardeskaya, senior analyst at Swissquote said of the mood: "European and US futures are firmly in the green into the European open, as the decline in oil prices could prove sustainable and lead to easing inflation expectations globally, and a softer monetary policy stance across central banks".

She added: "As long as oil prices remain in check, markets' geopolitical concerns will ease. That's great news heading into a week full of major central bank meetings."

The Bank of England had already been widely tipped to maintain Bank rate at 3.75% this Thursday due to persistent labour market and economic weaknesses helping offset fears of higher inflation becoming engrained in the UK.

Inflation figures are expected to show a rise to 3% in the 12 months to May, up from April's rate of 2.8%.

The outlook for inflation is dependent on raw energy prices, especially heading into the winter.

(c) Sky News 2026: Oil prices drop and stocks enjoy cautious rally on US-Iran peace progress