Oil prices tumbled Monday as a pause in tit-for-tat strikes between the United States and Iran boosted hopes for a return to their ceasefire and negotiations on reopening the Strait of Hormuz.
After 13 days of attacks on sites in the Islamic Republic, the United States held fire over the weekend, and Donald Trump’s UN envoy said the US president was “giving talks some space.”
Tehran, in turn, said it would stop its retaliatory attacks on regional neighbors, handing Gulf shipping and the oil industry a respite.
The two resumed hostilities this month, breaking a fragile truce, after Iran attacked ships passing through Omani waters in the Strait of Hormuz, sparking a pattern of escalation.
That derailed diplomatic efforts between Washington and Tehran, but the conflict then expanded beyond the vital energy corridor and saw Iran-backed Houthi rebels in Yemen strike Saudi vessels in the Bab al-Mandeb Strait, a crucial passage into the Red Sea.
Crude prices soared on the flare-up, with Brent breaking back above $100 a barrel last week for the first time since May. News that shipping continued in the Red Sea helped investors pare the gains Friday.
However, Trump’s decision to hold off on more strikes and Iran’s claims Sunday that it had made progress in talks with Oman on management of the Strait of Hormuz provided some much-needed relief.
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The discussions focused on “common principles and operational mechanisms” for ensuring the safe passage of shipping through the strait while respecting the sovereign rights of the two states, Iran’s foreign ministry spokesman Esmaeil Baqaei said.
Meanwhile, a report said mediator Pakistan was looking at resuming US-Iran peace talks following a push initiated by China.
Both main oil contracts sank Monday, with Brent shedding more than seven percent at one point to briefly drop back below $90.
“It looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above $100 a barrel seems to induce de-escalatory behavior from both sides,” wrote National Australia Bank’s Sally Auld.
The positive developments eased worries about a reignition of inflation and a fresh round of interest rate hikes, in turn helping equity markets rise higher.
However, concerns about the sustainability of the AI boom and questions over the eye-watering sums pumped into the sector continue to dog traders, as tech firms bear the brunt of selling.
Seoul, which has led the rout in recent weeks, rose one percent with chip giants SK Hynix and Samsung enjoying some much-needed buying interest.
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