Oil prices fell to their lowest level in three months on Monday after U.S. President Donald Trump and Iran’s deputy foreign minister said they had reached an initial agreement to end hostilities and reopen shipping through the Strait of Hormuz.
Reuters reports that by 06:30 GMT, Brent crude was down $3.65, or 4.2 per cent, at $83.68 a barrel, while U.S. West Texas Intermediate fell $4.13, or 4.9 per cent, to $80.75. Both benchmarks hit their lowest intraday levels since March 10 after declines that began on Friday.
Pakistan, which served as mediator, said the United States and Iran will sign a memorandum of understanding in Switzerland on Friday.
Trump said the strait would be reopened “toll free” and that a U.S. naval blockade of Iranian ports would end. Iran’s semi-official Mehr news agency reported the draft deal calls for the strait to reopen within 30 days under Iranian oversight.
Market analysts said the geopolitical risk premium that had been supporting crude prices is being rapidly unwound as traders price in resumed oil flows. “The geopolitical risk premium is now being unwound quite aggressively,” said Tim Waterer, chief market analyst at KCM Trade, told Reuters.
Global energy markets have been disrupted since the conflict closed the Strait of Hormuz — a chokepoint for about one-fifth of the world’s oil and liquefied natural gas — for more than three months, removing millions of barrels of supply. Investors are now watching how quickly Middle Eastern producers can restore output and whether shipping traffic will return to pre-conflict levels.
“Oil flows through the strait just need to reach 60–70 per cent of pre-war levels to return markets toward pre-war oversupply expectations,” said Vivek Dhar, commodities strategist at Commonwealth Bank of Australia, noting upside risks remain if production and exports take longer to normalise.
Iran’s deputy foreign minister, Kazem Gharibabadi, said a broader agreement would be negotiated during a 60-day ceasefire. The E4 countries (the United Kingdom, France, Germany and Italy) said they were prepared to lift sanctions on Iran in response to progress on its nuclear program.
Analysts cautioned that while prices fell on the immediate news, longer-term outcomes depend on the speed of supply normalization and compliance with the agreement. “Attention will now shift toward the pace of actual supply normalisation and compliance,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. She added that damage to infrastructure and the economic toll on importing economies from prolonged high energy costs may limit how fast markets fully recover.
