Oil sinks below $90 a barrel after Trump says Iran war is 'effectively over'

The price of oil fell below $90 a barrel for the first time since the summer after Donald Trump said the war with Iran is 'effectively over'. Brent crude dropped nearly 4% to $89.21 on Tuesday, following a 6% decline on Monday when the US president stated he was 'highly unlikely' to resume missile strikes on the Islamic Republic.

Speaking after meeting with Qatar prime minister Sheikh Mohammed bin Abdulrahman bin Jassim Al Thani, a key mediator in diplomatic efforts to end the conflict, Trump declared: 'Iran militarily is effectively over. We're just keeping it the status quo.' Speculation that Tehran had made concessions over the Strait of Hormuz also contributed to the price decline.

Market Impact

The slump in oil prices boosted global stock markets recovering from last week's US 'tech wreck'. The FTSE 100 gained around 30 points to 10,813 in early Tuesday trading following a 100-point rally on Monday, with similar gains in Frankfurt and Paris.

However, analysts cautioned that peace may still be distant. Oil has fallen 24% since late October when it traded at $118 per barrel, though it remains well above the $60-$70 range seen before the Middle East conflict erupted earlier this year.

Consumer Effects

Despite the recent drop, consumers continue to face high costs. The average diesel price in Britain remains close to £2 per litre while unleaded is around 170p. Households face potential energy bill jumps with the price cap set to exceed £2,000 in January, up from £1,723 last month.

Richard Hunter, head of markets at Interactive Investor, noted that oil is still 'feeding into the inflationary picture' despite the recent decline. Brent crude fell 16% last week, marking its biggest weekly drop since the start of the Covid-19 pandemic.

Political Shift

Analysts suggest Trump has 'toned down his bellicose rhetoric' on Iran following last week's midterm elections, where his Republican party suffered heavy losses. David Morrison of Trade Nation explained: 'In the lead-up to last week's midterms Trump had threatened aggressive military action against Iran, but he has dialled back on those threats.'

The price decline was further supported by reports indicating Iran had dropped its demand to control the Strait of Hormuz and charge vessels fees for passage through the crucial waterway. Daniela Hathorn of Capital.com warned that while reduced geopolitical tensions have encouraged investors, 'the optimism remains dependent on tangible diplomatic progress, and any setback in negotiations could quickly reverse the move.'