Oil falls as Hormuz deal eases supply shock

Oil prices slid to their lowest levels since March on Monday after Washington and Tehran said they had reached an initial deal aimed at ending the war and restoring traffic through the Strait of Hormuz, easing fears that months of disruption to one of the world’s most important energy corridors would deepen.

Brent crude futures fell $4.08, or 4.7 per cent, to $83.25 a barrel by 0415 GMT, while US West Texas Intermediate dropped $4.35, or 5.1 per cent, to $80.53. Both benchmarks touched their weakest levels since March 10, extending losses after a fall of more than 3 per cent on Friday as traders moved quickly to price out part of the geopolitical risk premium built into crude.

The price move followed statements from President Donald Trump and Iran’s deputy foreign minister, Kazem Gharibabadi, indicating that the two sides had agreed on an initial framework to halt fighting and begin reopening the Strait of Hormuz. Pakistan, which acted as mediator, said a memorandum of understanding would be signed in Switzerland on Friday, with technical discussions expected to shape the first phase of implementation.

Trump said the waterway would reopen “toll free” and that a US naval blockade of Iranian ports would end. Iran’s semi-official Mehr news agency said the draft understanding envisaged reopening the strait within 30 days under arrangements overseen by Tehran. Gharibabadi said a wider settlement would be negotiated during a 60-day ceasefire period, leaving key questions over sanctions relief, nuclear commitments, maritime security and verification unresolved.

The Strait of Hormuz links the Persian Gulf with the Gulf of Oman and the Arabian Sea. Before the disruption, about 20 million barrels a day of oil moved through the channel, equivalent to roughly one-fifth of global petroleum liquids consumption. Around one-fifth of global liquefied natural gas trade also transited the strait, much of it from Qatar, underlining why even a partial restoration of traffic would have an immediate effect on energy markets.

The agreement marks the first clear diplomatic break in a conflict that had shut or severely constrained shipping through the route for more than three months. Tankers, insurers and traders are now waiting for details on mine clearance, naval coordination, transit guarantees, port access and liability arrangements before shipping volumes can return to normal. Energy analysts cautioned that the headline agreement does not automatically restore supply, as damaged infrastructure, disrupted loading schedules and displaced tankers could slow recovery.

The market reaction reflected relief rather than certainty. Oil traders had feared that a prolonged closure would force deeper stock drawdowns, raise freight and insurance costs, and sharpen inflationary pressure across major importing economies. The International Energy Agency’s emergency system has already been activated during the Middle East disruption, with member countries using stock releases to soften the blow from supply shortages. Such measures are designed to cushion sudden supply shocks, not to manage prices over the longer term.

Lower crude prices helped lift sentiment across Asian markets. Mumbai-listed shares rose sharply, with the Nifty 50 and Sensex advancing as investors assessed the impact of cheaper energy on inflation, the rupee, corporate margins and the current-account deficit. Oil marketing companies, tyre makers, paint manufacturers, infrastructure firms and airlines gained, reflecting expectations that softer crude could reduce input costs if the decline is sustained.

For India, the fall in crude carries direct macroeconomic significance because the country imports most of its oil requirements and is highly exposed to swings in Gulf energy flows. A durable easing in prices would help reduce pressure on fuel costs, imported inflation and the trade balance, though refiners remain cautious about the timing and reliability of cargo movements through Hormuz.

European governments also signalled that sanctions relief could form part of a broader settlement if Tehran takes verifiable steps on its nuclear programme. That element could become central to the next phase of talks, as Iran is expected to seek economic concessions in return for maritime access guarantees and limits on military activity. The United States, meanwhile, faces pressure to show that any arrangement protects commercial shipping while preventing Iran from using the waterway as leverage in future crises.

The immediate risk for oil markets is that prices may have moved faster than physical supply. Even if ships begin returning within weeks, insurers, charterers and refiners are likely to demand proof that transit is safe and predictable. Pipeline routes through Saudi Arabia and the UAE have provided some relief, but available spare capacity outside the strait is limited and cannot fully replace normal Hormuz flows.