Oil tumbles as US-Iran pause eases supply fears

Oil prices slumped on Monday after the United States and Iran halted attacks, raising hopes that diplomacy could prevent a wider conflict and restore stability to critical energy routes across the Middle East.

Brent crude, the benchmark for more than two-thirds of global oil supplies, fell 9.13 per cent to $87.94 a barrel by 11.55pm UAE time. West Texas Intermediate dropped 7.94 per cent to $82.22 a barrel, reversing much of the risk premium accumulated during two weeks of military confrontation.

The retreat followed indications that Washington and Tehran were allowing mediators to pursue negotiations after almost two weeks of US strikes and Iranian retaliation. The pause reduced immediate fears of disruption around the Strait of Hormuz, through which about a fifth of global petroleum consumption normally passes.

US President Donald Trump said negotiations were under way but warned that military operations could resume if talks failed. Tehran also signalled that its restraint depended on Washington maintaining the halt, leaving traders cautious about treating the pause as a permanent ceasefire.

Oil had climbed above $100 a barrel during the confrontation as attacks, maritime restrictions and threats against regional infrastructure increased the possibility of prolonged supply losses. Monday’s sharp fall reflected the rapid removal of that geopolitical premium rather than any immediate increase in global production.

The market’s relief was tempered by a separate escalation involving Yemen’s Houthi militia. The group stepped up attacks on vessels in the Red Sea and launched missiles and drones towards Saudi energy facilities, extending the threat to another route central to global trade.

Saudi authorities said air defences intercepted projectiles aimed at oil infrastructure on the Red Sea coast. The targets included facilities connected to the kingdom’s network for moving crude from eastern production fields to the export terminal at Yanbu, allowing shipments to bypass the Strait of Hormuz.

The East-West pipeline has gained strategic importance as tanker operators seek alternatives to Gulf routes exposed to the confrontation with Iran. Any sustained threat to the pipeline or Yanbu would weaken one of the main options available for maintaining Saudi exports during a disruption in Hormuz.

Shipping through the Bab el-Mandeb Strait has already declined sharply as vessel operators reassess security risks. Oil flows through the southern entrance to the Red Sea fell to about 2.9 million barrels a day from 5.9 million barrels a day a week earlier.

Several tankers carrying Saudi crude towards customers in Asia reversed course after approaching high-risk waters near Yemen. Other vessels were diverted around Africa’s Cape of Good Hope, adding time, fuel costs and insurance expenses to journeys between the Middle East, Europe and Asia.

The Houthis have presented their campaign as part of a regional confrontation involving Iran and its allies. Their attacks have continued despite the pause between Washington and Tehran, demonstrating that a bilateral understanding would not automatically end threats to shipping or Gulf energy assets.

Saudi Arabia has responded with defensive operations and strikes against Houthi-controlled areas in Yemen. The renewed exchange has increased concern that Riyadh could become more deeply involved in a conflict it had sought to contain through years of negotiations with the group.

Traders are now assessing two competing signals. The interruption of US-Iran attacks has lowered the probability of immediate supply losses from the Gulf, while the widening Houthi campaign has placed a larger portion of Red Sea energy traffic at risk.

Oil’s steep decline also reflected concerns about demand. High prices had begun to weigh on consumption across Asia, where importers faced rising transport and refining costs. Expectations of weaker fuel use made it harder for crude to sustain levels above $100 without a major physical supply disruption.

Additional pressure came from the return of some exports elsewhere and signs that commercial inventories remained adequate. The market had continued receiving crude despite shipping delays, limiting the effect of military developments on available supplies.

Volatility is expected to remain elevated because the price decline depends heavily on negotiations that have yet to produce a formal settlement. Disagreement over maritime access, sanctions, Iran’s nuclear programme and security guarantees could quickly return military risk to the market.

The status of the Strait of Hormuz remains central to the talks. Proposals under discussion include arrangements to guarantee navigation and establish a mechanism for managing maritime security, although the parties have not publicly agreed on enforcement or oversight.