Trump Declares Iran Peace Deal 'Over,' Raising Oil and Gas Price Volatility

President Donald Trump announced Wednesday that the ceasefire agreement with Iran, signed on June 18, is "over," introducing renewed volatility to global oil markets and fuelling expectations of higher fuel prices in North America and beyond. The development comes after a three-week period in which a fragile peace allowed limited oil exports through the Strait of Hormuz and a partial recovery in energy inventories that had been depleted by months of conflict.

Following the signing of a Memorandum of Understanding with Iran, oil prices declined, falling below levels seen prior to the outbreak of hostilities. The reopening of the Strait of Hormuz, a key shipping channel for global oil supply, enabled approximately 200 million barrels of oil to be exported over the past three weeks, according to Andy Lipow, president of Lipow Oil Associates. This figure represents roughly two days of global oil demand. Of this total, about 60 million barrels were Iranian crude, subject to U.S. sanctions reimposed on Tuesday that give buyers a ten-day window before restrictions take effect once again.

Despite the partial reopening, tanker traffic through the Strait has remained about one-third of normal volumes, and the cost of transporting oil has reflected the elevated risk. Lipow notes that shipping oil from outside the Strait to Asia requires an outlay of US$4 million to US$5 million per tanker, but moving oil from within the Strait now costs US$8 million to US$10 million per vessel. The higher costs reflect the security risks and reduced availability of willing shippers. On Wednesday, at least four oil and gas tankers reportedly turned back after attempting transits, according to Reuters.

Market reaction has been pronounced. Brent crude futures, the global oil benchmark, traded just below US$78 per barrel on Wednesday, a 4% increase and the highest level since the day after the ceasefire was signed. West Texas Intermediate, the U.S. benchmark, hovered around US$73.60 per barrel, up nearly five percent from the previous day. The Canadian Automobile Association reported that the average national price for regular gasoline in Canada reached almost $1.64 per litre, a rise of nearly four cents in a day.

The re-escalation of U.S.-Iran tensions underscores the vulnerability of global energy markets to disruptions in the Middle East, which supplies a significant share of the world’s oil. Analysts indicate that any further conflict or closure of the Strait of Hormuz would likely create additional supply shocks, driving up fuel prices for consumers and increasing economic risk.

The United States has drawn down its Strategic Petroleum Reserve (SPR) to offset lost supply from the Middle East. The SPR now stands at 319.5 million barrels, a 23% decrease from pre-war levels and the lowest since the reserve began filling in 1983. Commercial inventories at Cushing, Oklahoma, a key U.S. pipeline hub, remain below operational stress thresholds. Although Cushing's stockpiles recently increased by 700,000 barrels, they are still less than 20 million barrels, a level at which the facility struggles to distribute crude to refineries.

President Trump, at a G7 meeting in late June, expressed concern that low oil inventories could damage the U.S. economy and draw comparisons to the economic crisis of the 1930s. "I didn’t want to see economic catastrophe," Trump said, referencing the risk of being compared to President Herbert Hoover.

On Tuesday, the U.S. government revoked Iran’s licence to sell oil, citing reports of attacks on three oil tankers in the Strait of Hormuz. This action reimposes sanctions on Iranian crude and is expected to further constrain global supply in the short term.

Speaking at a NATO summit in Ankara, Trump criticized Iranian officials for not adhering to the terms of the negotiated agreement and warned that additional military action was likely. "I'll give a little warning: We're going to hit them hard tonight," Trump told reporters, indicating that U.S. forces would conduct further strikes following the previous day's attacks.

The renewed uncertainty has prompted cautious responses from financial markets. While U.S. stock indices showed muted reaction at the opening bell, bond markets responded more sharply. The yield on the 10-year U.S. Treasury note rose to 4.57%, its highest since late May, as investors weighed the risk of energy-driven inflation and its impact on economic growth.

The stakes for both the U.S. and global economies remain significant. Continued disruption of oil flows through the Strait of Hormuz could exacerbate supply shortages, increase shipping costs, and sustain upward pressure on fuel prices. For Canada, higher oil prices typically translate into increased costs for consumers at the pump, with the national average already trending upward in response to recent developments.

Observers remain uncertain whether the latest military exchanges and threats represent a brief escalation or a return to broader conflict. The situation continues to evolve, with oil markets and policymakers closely monitoring shipping activity and diplomatic signals for indications of further change.