Oil prices plunged and U.S. stock futures soared early Wednesday after President Donald Trump announced a ceasefire in the war with Iran.
Trump said on social media that the ceasefire was subject to “the Islamic Republic of Iran agreeing to the COMPLETE, IMMEDIATE, and SAFE OPENING of the Strait of Hormuz.” Israel also said it would abide by the two-week ceasefire, though it said it would keep fighting in Lebanon.
The price of U.S. crude oil slid more than 15% to around $95 per barrel, a stunning drop after it traded as high as $117 on Tuesday.
S&P 500 futures also soared, rising more than 2.7%, while Dow futures spiked by more than 1,100 points or 2.5% and Nasdaq 100 futures jumped 3.5%. Futures that track the Russell 2000 index rose 3.8%.
The price of natural gas, wholesale gasoline and heating oil, which is a proxy for jet fuel, also traded sharply lower on the news of a potential ceasefire.
U.S. crude oil is still up more than 65% since the year began, even when factoring in Wednesday's sharp drop. Since the war began on Feb. 28, the price of U.S. crude oil is still up more than 40%, as of Wednesday morning.
Marine traffic through the Strait of Hormuz has been effectively halted since the beginning of March, as tankers hesitated to enter a narrow waterway so close to the Iranian coast. Ships have also been threatened and struck with drones and projectiles.
Typically, the Strait of Hormuz carries more than 20% of the world's daily oil supply to the global market.
As a result, investors had been on edge all day, watching and parsing headlines to determine whether a pause would be announced or whether the war would escalate.
"From an insurance point of view, the ceasefire is of course welcome," said Neil Roberts, head of the Lloyd's Market Association in a statement. "Time will tell whether it is a pause or a peace but, in the meantime, it is highly unlikely that trade into the Gulf will simply resume. The region remains at heightened risk with none of the underlying tensions resolved."
The Lloyd's of London market in London serves as the primary global hub for maritime and shipping insurance.
In a response to Trump's announcement, Iran's foreign affairs minister, Seyed Araghchi, wrote on X, "For a period of two weeks, safe passage through the Strait of Hormuz will be possible via coordination with Iran's Armed Forces and with due consideration of technical limitations."
It was not clear whether Iran was committing to let any ship pass and what, if any, tolls would be exacted for passage through the strait.
The Trump administration has insisted since the war started that U.S. gas prices will fall quickly as soon as the fighting stops and the Strait of Hormuz reopens.
The average price per gallon of retail gasoline was $4.14 Tuesday. The price of diesel fuel was $5.64 on average, nearing its all-time high of $5.82 in 2022.
"Gas prices could start reversing nationally in 48 hours or so- by a few cents every day," GasBuddy analyst Patrick De Haan wrote on X. "Diesel prices may lag slightly," he added, while warning that his analysis was only tentative due to the rapidly changing situation.
U.S. Treasury yields also declined on the president's announcement, another sign that traders are likely to be breathing at least a temporary sigh of relief.
The price of precious metals jumped along with other assets. Spot gold prices jumped 2.5%, and silver rose 5%.
Markets in Asia and Europe also surged higher. Japan's benchmark Nikkei 225 stock index soared 5.5%, Australia's ASX 200 jumped 2.5% and the Hang Seng index in Hong Kong jumped 3%.
Europe's Stoxx 600 was higher by 3.8%, while flagship stock indexes in Germany and France surged more than 4%. The United Kingdom's FTSE 100 jumped about 3% while Italy's FTSE MIB rose 3.7%.
