Global crude oil markets suffered a sharp downward correction on Monday, as a surprise temporary ceasefire between the United States and Iran eased fears of disrupted energy supplies through the world’s most critical chokepoints for oil shipping. The sudden shift toward diplomacy came after 13 consecutive days of escalating military exchanges that had pushed benchmark Brent crude prices above the $100 per barrel threshold just last week.
The de-escalation began over the weekend, when Washington halted its series of airstrikes on Iranian targets, a move the U.S. ambassador to the United Nations said was intended to “create space” for diplomatic negotiations to resolve tensions. In a reciprocal gesture that calmed markets, Iran’s military announced it would pause retaliatory attacks targeting regional actors, a decision that brought immediate relief to commercial shipping operations in the Persian Gulf and the broader oil industry.
The latest cycle of violence erupted earlier this month, when Iran attacked commercial vessels transiting Omani waters in the Strait of Hormuz – the route through which roughly 20% of the world’s daily oil supplies pass – breaking a fragile ceasefire that had held since April. For 13 straight nights ending Friday, the U.S. carried out consistent airstrikes, marking the largest resumption of hostilities in months, before the unilateral pause in attacks Friday through Sunday.
Even as the two main belligerents move toward talks, risk remains in other critical shipping corridors. Iranian-aligned Houthi rebels in Yemen have launched new attacks on commercial shipping in the Bab el-Mandeb Strait, the key entry point to the Red Sea that handles roughly 12% of global trade. That escalation had been a core driver of oil’s price surge through last week, before reports of continued shipping activity through the strait tempered gains Friday.
Additional optimism emerged from Oman-mediated talks between Tehran and global stakeholders, focused on establishing agreed frameworks and operational rules to guarantee safe passage for all vessels through the Strait of Hormuz, while upholding the sovereign rights of all bordering nations. Esmaeil Baqaei, spokesperson for Iran’s foreign ministry, confirmed progress on these discussions Monday. Separately, diplomatic sources indicate Pakistan is weighing a proposal to restart as a neutral mediator for U.S.-Iran talks, following an initiative put forward by China.
By the close of trading Monday, the price drop left major oil benchmarks far below last week’s multi-month highs. Brent crude fell more than 7% at its intra-day low, dipping briefly below $90 per barrel before settling at $91.89 per barrel. U.S. West Texas Intermediate crude fell 5% to close at $84.64 per barrel.
Sally Auld, chief economist at National Australia Bank, noted that the weekend’s positive trajectory in the Middle East validates market expectations that triple-digit oil prices would incentivize both sides to pull back from open conflict. “It appears that developments in the Middle East moved in a positive direction this weekend, which gives credibility to the idea that oil prices above $100 per barrel can encourage de-escalation from both sides,” Auld wrote in a market note Monday.
The easing of energy price risks also rippled through global equity markets, reducing investor fears of a resurgence in global inflation that could force central banks to implement new interest rate hikes. Most major stock indices posted gains on the news, even as lingering concerns over unsustainable valuation growth in the artificial intelligence sector continued to put downward pressure on large technology and semiconductor stocks.
South Korea’s KOSPI led regional losses, falling more than 1% on Monday, with major chipmakers SK hynix and Samsung once again bearing the brunt of the sell-off. Other indices in Taipei, Singapore, and Jakarta also closed lower; Indonesia’s benchmark fell after the unexpected resignation of central bank governor Perry Warjiyo for personal reasons. Bucking the regional tech-driven downtrend, Tokyo’s Nikkei posted small gains even as major chip equipment and memory firms including Advantest, Kioxia, and Tokyo Electron saw heavy selling. Hong Kong, Shanghai, Sydney, Wellington, and Manila all closed the trading day in positive territory.