The international benchmark fell as much as 7% during early trading before recovering part of its losses. Brent futures were down $6.20, or 6.4%, at $90.58 a barrel by 0620 GMT, after briefly slipping below $90. West Texas Intermediate dropped $5.80, or 6.5%, to $83.51.
The sharp decline reflected the removal of part of the geopolitical premium that had accumulated during two weeks of attacks. Washington suspended bombing operations on Friday, while Tehran indicated it would stop retaliatory action for as long as the US pause remained in place.
Neither side launched attacks over the weekend, creating the longest break in hostilities since the latest escalation began. The pause has encouraged hopes that diplomatic contacts could produce a broader agreement, although neither government has declared a permanent ceasefire.
Iran’s position remains conditional, leaving markets vulnerable to renewed volatility if either side resumes military action. US officials have also kept the option of further strikes open while describing the break as an opportunity for diplomacy.
Oil prices had climbed sharply as attacks intensified and shipping activity through the Strait of Hormuz declined. The waterway connects Gulf producers with international markets and normally carries about a fifth of globally consumed petroleum liquids, including crude oil, refined fuels and liquefied natural gas.
Any sustained easing of tensions could reduce insurance costs, improve tanker availability and encourage shipping companies to restore routes through the strait. Vessel movements have fallen to their lowest level in several weeks as operators assessed missile, drone and boarding risks.
Brent had settled at $96.78 a barrel on Friday, despite falling nearly 4% during the session after reports emerged that diplomatic efforts were gaining momentum. The benchmark had traded above $100 earlier in the conflict as concerns grew over supply losses and prolonged restrictions on commercial navigation.
Monday’s fall also highlighted how much of the previous price increase was driven by fears of future disruption rather than a large physical shortage. Gulf producers continued exporting oil through alternative routes, while global inventories and spare production capacity provided limited protection against supply shocks.
China, Pakistan and Oman have played roles in efforts to stop the fighting and revive negotiations. Discussions have focused on restoring safer passage through Hormuz, limiting military operations and addressing unresolved disputes surrounding Iran’s nuclear programme.
A durable settlement could pull crude prices lower by reducing freight and insurance premiums. It could also ease inflationary pressure on energy-importing economies, where higher oil costs have affected transport, manufacturing, electricity generation and household spending.
Financial markets responded positively to the pause. Asian equities advanced, while currencies of major oil-importing countries strengthened. The US dollar weakened against the yen, euro and pound as investors moved away from defensive positions established during the escalation.
Lower crude prices could provide relief to central banks facing the risk that an energy shock might push consumer inflation higher. Expectations of tighter monetary policy had increased as oil approached triple-digit levels, particularly in economies dependent on imported fuel.
Refiners, however, continue to face uncertainty. Disruptions to tanker schedules, higher freight rates and tighter supplies of some crude grades have affected margins and procurement plans. Fuel prices may also take time to reflect the drop in futures markets because refiners and distributors bought earlier cargoes at elevated rates.
Energy traders will now watch whether commercial shipping returns to Hormuz and whether Washington and Tehran extend the military pause. A resumption of tanker traffic would provide stronger evidence that the risk to physical supplies is declining.
Attention is also focused on the language used by both governments. Iran has described its halt as reciprocal, meaning any new US strike could prompt an immediate response. Washington has not committed to a formal timetable or announced binding terms governing the suspension.
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