Peace in West Asia, relief for the world

War draws to a close as US, Iran agree to sign deal on Friday

- Rituraj Baruah

After multiple false starts towards peace, the US and Iran agreed to shake hands and end the West Asia war that has rocked the world for over 100 days, sending waves of relief across markets, industries and policy circles.

Yet, concerns remain about the deal’s stability and longevity, given Israeli officials’ opposition to a deal they say does not address their country’s concerns.

Crude oil prices were the first to react to the news, falling around 5%, after news broke that the two sides will sign the peace agreement on Friday in Switzerland. On Monday evening, the Brent August contract was trading 4.95% lower at $83.01 per barrel. Global markets cheered, President Trump’s deal with Iran is set to reopen the Strait of Hormuz, but how quickly it can arrest a steep decline in oil stockpiles will determine the trajectory of energy prices in the coming weeks.

For more than 15 weeks, the U.S. and other countries around the world have had to dip into oil tanks, salt caverns and strategic reserves to make up for the millions of barrels of oil trapped behind the strait. Now, the stocks are nearing critical levels, and energy executives say without an influx of more oil, prices will have to surge to stop the run on supplies.

Mike Wirth, chief executive of Chevron, has repeatedly warned on television that the supply crunch will soon manifest itself around the world. Neil Chapman, the No. 2 at Exxon Mobil, has said the U.S. is approaching “unheard-of inventory levels.” Other executives, such as Wil VanLoh, of Quantum Capital Group, say “it’s going to get ugly.”

“The world has never had to destroy 10 million barrels a day of oil demand,” VanLoh added, referring to the crude production not making it to global markets.