Oil prices dropped sharply on Wednesday while European stock markets moved higher, as investors reacted to signs that tensions surrounding the Iran conflict could ease.
Brent crude, the international benchmark, fell by more than 4% to trade near $100 a barrel, while US crude declined by over 3.7% to just below $89. The fall comes after days of volatility linked to disruptions around the Strait of Hormuz, a key route for global oil and gas shipments.
Markets were lifted by comments from Donald Trump, who said progress had been made in talks with Iran. His decision earlier this week to delay a threatened strike on Iran’s energy infrastructure also raised hopes that a broader de-escalation could be within reach. Reports suggest Washington has proposed a ceasefire plan, although Iranian officials have dismissed the idea and denied that negotiations are taking place.
European equities responded positively to the shifting outlook. The FTSE 100 in London rose nearly 0.9%, while the CAC 40 gained 1.4% and the DAX climbed 1.7% in early trading. Analysts said investor sentiment improved as the possibility of reduced geopolitical risk began to outweigh immediate concerns over supply disruptions.
Russ Mould, investment director at AJ Bell, said the rebound in equities was driven by optimism over a potential peace plan, though uncertainty remains. He noted that oil prices continue to fluctuate as reports of diplomatic progress are balanced against ongoing military activity and the deployment of additional US forces in the region.
Shipping activity through the Strait of Hormuz has also shown tentative signs of improvement. Data from ship tracking services indicate that some vessels have been allowed to pass, suggesting that a full disruption to global energy flows may be avoided for now.
In the United Kingdom, inflation data showed prices rising by 3% in February compared with a year earlier, unchanged from the previous month. Analysts cautioned that the figures predate the latest escalation in the Middle East and may not yet reflect the full impact of higher energy costs.
Lindsay James, an investment strategist at Quilter, said the key issue is whether rising oil prices will have a lasting effect on inflation. She noted that the short-term impact may remain limited, though expectations for interest rates from the Bank of England have shifted as markets brace for potential inflationary pressure.
Global markets also reflected the improved mood, with Asian stocks posting gains and US futures edging higher. Gold and silver prices rose, while cryptocurrencies saw modest increases.
Despite the optimism, analysts warn that the situation remains fragile, with markets likely to stay sensitive to developments in the Middle East and any signals of progress or setbacks in diplomatic efforts.
