“A wave of relief has hit financial markets after threats of a devastating escalation of the war were replaced by a temporary truce,” said Susannah Streeter, chief investment strategist, Wealth Club.
The most widely traded oil contracts fell more than 15% to just above US$90 a barrel after a month of conflict that killed thousands and hammered the global economy.
Stock markets soared, with Wall Street’s three main indexes opening more than 2% higher.
Europe’s main bourses were up between two and five percent in mid-afternoon trading.
The Tokyo stock market closed up 5.4% and Chinese indices jumped around 3%.
The dollar, a safe haven in times of market turmoil, slid against the euro, yen and British pound as investors returned to riskier assets.
But traders warned that the euphoria could be short-lived as both sides have threatened to resume hostilities if the two-week pause does not lead to an agreement.
“In reality, the markets are not pricing in peace but a window for negotiation. And that is precisely the issue: in two weeks, either this window will lead to a lasting agreement, or it will only postpone and amplify the energy shock that everyone fears,” said John Plassard of Cite Gestion.
Maritime monitor Marine Traffic noted that two ships had passed through the waterway since Iran agreed to reopen it, through which much of the world’s oil, gas and fertiliser passes. But a major German shipping company said it was too early for its trapped ships to set sail out of the Gulf.
Shipping journal Lloyd’s List estimated that around 800 ships were hampered.
The International Air Transport Association, meanwhile, said that it would take months for jet fuel supplies and prices to normalise.
“Should talks falter or activity through the strait remain subdued, oil prices and the dollar could reverse course fairly quickly,” said Matthew Ryan, head of market strategy at global financial services firm Ebury.
Most equity sectors saw sizeable gains, with mining groups, banks and airlines among the biggest winners, with gains of more than 10% in some cases.
Energy majors slumped, however, having made huge gains over the past few weeks.
Shell was down more than 6% in London even as it said first-quarter earnings were set for a “significant” boost from higher oil prices. BP fell more than 7% and Totalenergies 5%.
Despite Wednesday’s hefty falls in oil and gas prices, fuel prices and energy company share prices remain far above their levels on the eve of the Mideast war at the end of February.
“I don’t think we’re going to (quickly) go back to the levels we were at before the war,” said Kathleen Brooks, research director at XTB traders.
“The reason why is that energy infrastructure across the Gulf has been targeted.”