It’s not a deal till it’s signed, and there will be risks even after, so don’t count your barrels yet

On Sunday, Trump gave himself a birthday present, but it may take time to find out how good it really is. Two big questions are on everyone’s mind. First, will oil prices go back to $73 a barrel, where they were before February 28? Second, is the war with Iran truly over? The answers are “probably not” and “maybe.”

As for peace, neither the US nor Iran has seemed eager to keep fighting since April, despite Trump’s dramatic statements. But there are still problems. One is Israel’s role in the conflict. Another is Iran’s nuclear programme. The agreement that the US and Iran plan to sign on Friday does not solve the nuclear issue. They have given themselves 60 more days to discuss that. A lot can happen in two months, or even before Friday. That is why nobody can be sure that peace will last. Even so, financial markets seem optimistic. Stock prices have gone up, while the dollar and oil prices have gone down.

Still, markets can change their minds quickly. They have done so several times in the last three months. What is encouraging is that oil prices have slowly fallen from about $120 a barrel to around $80. If traders are willing to agree to lower prices for future oil deliveries, they probably believe the worst part of the crisis has passed.

However, oil is unlikely to drop from $80 to $70 overnight. And ships stuck in the Persian Gulf cannot simply start moving right away, even if the US and Iran remove their blockades on Friday. About 500 ships are trapped there. Because the Strait of Hormuz contains mines, ships will have to leave carefully and in an organised way. Clearing all the mines could take months.

There is some good news. Those ships are carrying more than 100 million barrels of oil. Countries in the Gulf region have also built up large oil and gas supplies because they have been unable to export them since February. Once shipping returns to normal, huge amounts of oil and gas could enter world markets.

But that does not mean prices will crash. Countries that use a lot of oil will probably rush to refill their emergency reserves, which have been running low. Also, insurance companies and traders now know how much disruption Iran can cause in the Strait of Hormuz. Because of that risk, they may charge extra in the future. Natural gas prices could stay high for even longer, because Qatar’s damaged gas facilities may take three to five years to repair.

In short, peace would be good news for the world economy and could lower energy costs. But oil and gas prices are unlikely to return quickly to the levels seen in February.

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