Ceasefire impact holds across markets despite varying reports on the Strait of Hormuz

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(The Center Square) – Stock markets soared and oil prices plummeted after the start of a two-week ceasefire with Iran, despite conflicting reports regarding the Strait of Hormuz.

After a strong opening with the S&P 500 climbing 2.1%, the Dow Jones Industrial Average up 2.3% and the Nasdaq composite up 2.6%, the three indexes stayed relatively stable Wednesday despite some reports that Iran had already re-closed the strait. Oil prices, too, dropped from $110 to $95 Wednesday morning and remained below $97 at 4 p.m. 

The White House said the reports of another strait closure are false.

“Again, this is a case of what they’re saying publicly is different privately. We have seen an uptick of traffic in the strait today,” White House Press Secretary Karoline Leavitt told reporters at a press briefing Wednesday afternoon.

About 20% of the world’s oil flows through the Strait of Hormuz, and as that traffic has been deeply impacted during joint American and Israeli military campaigns in the Middle East, the cost of oil has surged. The stock market has also shown significant volatility.

When the Trump administration announced Tuesday night that it had agreed to a Pakistan-brokered ceasefire contingent on the reopening of the Strait, markets were expected to respond positively on Wednesday. However, when Israel struck numerous Hezbollah targets in Lebanon Wednesday morning, reports began circulating in major media outlets that Iran had closed the strait in response.

The administration and Israel have said, however, that the ceasefire did not include Israel and Hezbollah fighting in Lebanon, while Pakistan and Iran have said publicly that it did. 

Mark Cancian, senior adviser for the Center for Strategic and International Studies’ Defense and Security Department, said a number of conditions have to be met for the strait to be fully operational.

“The ceasefire announcement is welcome news, but there are many steps between the announcement and the free flow of oil from the Gulf,” Cancian told The Center Square. “These steps include the ceasefire holding on both sides, the Iranians allowing unrestricted passage, the main shipping channels being swept of mines, and the cessation of tolls.”

Despite Wednesday’s seeming volatility, the S&P finished the day better than it started, up 2.44% or 161.63 points from Tuesday’s close. Similarly, the Dow and Nasdaq finished 1,328.63 and 620.05 above the previous close, or 2.85% and 2.82% higher than Tuesday.

President of the Institute for Energy Research Thomas Pyle said that the combination of general uncertainty regarding Operation Epic Fury with the strait’s closure over the past five-plus weeks sparked “near unprecedented volatility” in oil markets. The ceasefire, in turn, could have a stabilizing effect on oil prices if it leads to further peaceful conflict resolution.

“The ceasefire, if it holds, should cause prices to decline initially and stabilize once the picture becomes clearer and the markets are confident the conflict is heading towards a resolution that doesn’t include bombs and missiles. Confidence in the market will further build once we see a steady stream of tanker traffic resuming through the Strait,” Pyle told The Center Square.

However, that depends on whether it holds.

“Iran has been saying one thing and doing another throughout this conflict, so the next few days will be an important bellwether for the market,” Pyle said.