Global oil prices traded lower on Wednesday morning after US President Donald Trump announced an extension of the ceasefire with Iran to allow talks to continue toward a “unified proposal”.
However, the ongoing US naval blockade of Iran and the prolonged closure of the Strait of Hormuz limited the decline in crude prices.
Around 7 AM, the June contract of Brent on the Intercontinental Exchange was trading at $98.06 per barrel, down 0.43% from its previous close. The May contract of West Texas Intermediate (WTI) on NYMEX fell 0.48% to $89.24 a barrel.
While the ceasefire extension offers short-term relief to markets, the continued blockade of Iran and the prolonged closure of the Strait of Hormuz mean supply-side risks remain elevated. For oil-importing nations such as India, volatility has become the biggest threat.
Ceasefire extended
In a statement, the US president said:
“Based on the fact that the Government of Iran is seriously fractured, not unexpectedly so and, upon the request of Field Marshal Asim Munir, and Prime Minister Shehbaz Sharif, of Pakistan, we have been asked to hold our attack on the country of Iran until such time as their leaders and representatives can come up with a unified proposal.”
"I have therefore directed our military to continue the blockade and, in all other respects, remain ready and able, and will therefore extend the ceasefire until such time as their proposal is submitted, and discussions are concluded, one way or the other," he added.
The initial two-week ceasefire had been due to expire on 21 April. Trump, however, did not specify a new deadline for the extension.
Iranian foreign minister Abbas Araghchi said in a tweet that blockading Iranian ports amounts to an act of war and violates the ceasefire.
Referring to the seizure of an Iranian ship by the US Navy, the foreign minister said that striking a commercial vessel and taking its crew hostage is "an even greater violation".
"Iran knows how to neutralize restrictions, how to defend its interests, and how to resist bullying," he said in a tweet on Tuesday.
Hormuz choke point
The closure of the Strait of Hormuz for over 50 days has cut off nearly one-fifth of global oil and gas supplies.
The strait is a critical energy artery for India, accounting for about 60% of its crude oil imports, nearly 50% of liquefied natural gas (LNG) imports and 90% of liquefied petroleum gas (LPG) imports.
For India, which imports nearly 90% of its crude oil requirement, supply disruptions and price volatility carry significant macroeconomic implications. A $1 per barrel increase in oil prices sustained over a year can raise India’s annual import bill by ₹16,000 crore.
The Indian basket price of crude stood at $103.05 per barrel as of 20 April. Its average price so far in April is $116.91 per barrel.
The Indian basket represents a derived mix of Sweet grade (Brent Dated) and Sour grade (Oman and Dubai average) crude oil imported by Indian refineries during the month.
