The fragile ceasefire between the United States and Iran showed new cracks Wednesday as Iranian state media reported the closure of the Strait of Hormuz – a critical chokepoint handling roughly one-fifth of the world's oil supply – in apparent response to Israel's continuing strikes on Lebanon.
The Israel Defense Forces carried out the largest coordinated strike on Lebanon since the conflict began, killing at least 254 people on Wednesday, according to Lebanon's Health Ministry. Israel has maintained that its war with Hezbollah falls outside the scope of the two-week ceasefire agreement with Iran. President Donald Trump echoed that position, describing the continued Israeli strikes as "not included" in the deal.
Iran's response has thrown the status of shipping through the strait into question. Iranian state media said tanker traffic through the waterway was halted, though the White House said Tehran subsequently gave assurances that vessels are being allowed to pass. Press secretary Karoline Leavitt described any closure of the strait as "unacceptable."
Iranian foreign minister Abbas Araghchi took a sharper line, posting on social media that the ceasefire terms are "clear and explicit" and that "the U.S. must choose – ceasefire or continued war via Israel. It cannot have both." He added: "The world sees the massacres in Lebanon. The ball is in the U.S. court, and the world is watching whether it will act on its commitments."
Secretary of Defense Pete Hegseth said the US military is prepared to resume hostilities "at a moment's notice," a signal that Washington's posture remains far from fully relaxed.
The ceasefire's geographic scope has itself become a point of contention. Pakistani prime minister Shehbaz Sharif announced Tuesday that the agreement covered all parties "everywhere including Lebanon and elsewhere." The White House has since clarified that Lebanon was not part of the deal, saying the position "has been relayed to all parties."
Diplomatic efforts continue, with Vice President JD Vance, special envoy Steve Witkoff and Jared Kushner expected in Islamabad this weekend for further Iran talks. President Trump is also scheduled to meet with NATO Secretary-General Mark Rutte, even as he has publicly criticized the alliance for not supporting his Iran campaign.
The ongoing he said-she said between Washington and Iran should do little to soothe markets, which have been rattled by the swirl of mixed messages coming from multiple sides.
Following news of the ceasefire, oil prices dropped sharply but remain significantly elevated, with Brent crude stood at around $95 per barrel as of Wednesday morning – up almost 30% since the war began but well below recent peaks of $110 per barrel. WTI crude sat at roughly $96 per barrel, still up more than 40% from pre-war levels despite the ceasefire-driven selloff.
US West Texas Intermediate futures with May delivery fell more than 16% to $94.62 per barrel, while international benchmark Brent crude futures with June delivery lost 13.8% to hit $94.16 per barrel.
Ellen Fraser, energy analyst and partner at global consultancy Baringa, doesn't see a quick return to normal for oil markets in any case.
"My sense is that it’s unlikely ships will move quickly – much as there is a lot of pent-up demand to get these cargoes moving, risks will need to be managed carefully given the lives and costs in play," Fraser said. "A better sense of the risks they’re taking and ultimately confidence that the likelihood of safe passage has increased materially will be needed before ships start to move en masse."
Trapped cargo ships are likely to flow out first, she said, adding that it will take some time before ships take the chance of moving into the gulf to pick up new cargo given overhanging risk of getting trapped. With that in mind, she expects oil prices to remain elevated.
"Assuming this ceasefire does hold, we still have an elongated period to get back to ‘normal’, if that’s even a possibility given the ongoing risk that there will now be a toll for ships to pass safely through the strait – not least some of the more fundamental damage to infrastructure may take months (if not years) to repair fully," Fraser said.
US stock markets opened higher Wednesday after the ceasefire, prompting a decline in oil prices and boosting investor sentiment tied to the potential reopening of key global energy routes. That relief rally came with an asterisk: in March, the S&P 500 recorded its largest monthly decline in a year, reflecting uncertainty tied to the conflict and broader economic conditions.
US stock markets opened higher Wednesday after the ceasefire, prompting a decline in oil prices and boosting investor sentiment tied to the potential reopening of key global energy routes. That relief rally came with an asterisk: in March, the S&P 500 recorded its largest monthly decline in a year, reflecting uncertainty tied to the conflict and broader economic conditions.
Short-term Treasury yields edged also lower Wednesday, while interest-rate futures indicate a 56% probability of a 25-basis-point rate cut by the end of 2026. Prior to the escalation of hostilities, market expectations had included at least two quarter-point rate cuts within the year.
Early Wednesday, BloombergNEF estimated that more than 1 million metric tons of Liquified Natural Gas could transit the Strait of Hormuz if laden vessels resume. However, these volumes still fall well short of offsetting broader summer supply disruptions, according to the research organization. The ongoing production halt in Qatar and the UAE could remove roughly 16 million tons of supply this summer under a late-April restart scenario, BloombergNEF added, in a statement.
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