Oil prices dropped by 3.5 percent on Tuesday after Israel announced its agreement to a ceasefire plan with Iran, proposed by U.S. President Donald Trump.

Stock markets in Asia cheered the news, as worries about a major disruption in energy supplies eased after 12 days of conflict between Israel and its long-time rival. European markets in London, Paris, and Frankfurt also saw gains at the start of trading.

Around 0830 GMT on Tuesday, Brent crude oil was down 3.5 percent, trading at $69.00 per barrel. The main U.S. oil contract, WTI, also fell by 3.5 percent to $66.10 per barrel.

"The potential end to the conflict has been welcomed by market participants," noted Lee Hardman from MUFG. He pointed out that Brent crude has "almost fully reversed all of the gains since the conflict started." Hardman added that a similar reversal was happening in currency markets, with the U.S. dollar losing its recent strength. If Middle East tensions no longer drive the market, he believes the U.S. dollar's weakening trend will likely continue.

Oil prices had briefly jumped on Monday morning due to concerns that Iran might retaliate against a weekend U.S. attack on its nuclear facilities by blocking oil shipments through the crucial Strait of Hormuz. However, prices then tumbled by as much as seven percent when Iran stated it had launched missiles at a major U.S. base in Qatar, confirming that oilfield assets were not affected.

'War Premium' Disappears

Stephen Innes from SPI Asset Management commented, "Tehran played it cool. Their 'retaliation' hit a U.S. base in Qatar loud enough for headlines, quiet enough not to shake the oil market's foundations." He explained that once this became clear, the “war premium” the extra cost built into oil prices due to conflict fears "came crashing out of crude."

The Israeli government stated on Tuesday that it had "achieved all the objectives" in its war with Iran, adding that it had removed "an immediate dual existential threat: nuclear and ballistic." The statement also warned that "Israel will respond forcefully to any violation of the ceasefire."

Global Markets React Positively

Tokyo's stock market ended the day up 1.1 percent, while Shanghai closed 1.2 percent higher. Hong Kong saw a strong finish, rising 2.06 percent on Tuesday afternoon.

Airline Virgin Australia's shares climbed significantly as it re-entered the local stock market, marking a remarkable recovery from near bankruptcy over four years ago.

In early European trading, London gained 0.7 percent, though gains were limited as shares in oil giants Shell and BP fell due to the drop in oil prices. Paris rose 1.5 percent, and Frankfurt jumped 1.8 percent.

In currency markets, the U.S. dollar gave back some gains after Federal Reserve Governor Michelle Bowman said she would support cutting interest rates at the July meeting if inflation remained stable. The market currently anticipates the Fed will resume cutting interest rates in September. Bowman's indication of "ongoing progress in tariff negotiations providing a less risky economic environment to adjust policy" led to the dollar weakening.

Key Market Figures (as of approx. 0830 GMT)

• Tokyo - Nikkei 225: UP 1.1 percent at 38,790.56 (close)

• Hong Kong - Hang Seng Index: UP 2.06 percent at 24,177.07 (close)

• Shanghai - Composite: UP 1.15 percent at 3,420.57 (close)

• Euro/Dollar: UP at $1.1591 from $1.1581 on Monday

• Pound/Dollar: UP at $1.3598 from $1.3526

• Dollar/Yen: DOWN at 145.04 yen from 146.12 yen

• Euro/Pound: DOWN at 85.26 pence from 85.60 pence

• West Texas Intermediate (WTI) Crude: DOWN 3.5 percent at $66.10 per barrel

• Brent North Sea Crude: DOWN 3.5 percent at $69.00 per barrel

• New York - Dow: UP 0.9 percent at 42,581.78 (close)

• London - FTSE 100: UP 0.3 percent at 8,787.24