Oil prices came under renewed pressure on Monday after the United States and Iran announced a preliminary agreement aimed at ending their conflict and reopening the Strait of Hormuz, easing concerns over global energy supplies.
The prospect of restoring traffic through the strategic waterway pushed crude benchmarks to their lowest levels since early March, extending the sharp declines seen at the end of last week.
Energy Markets React to Diplomatic Progress
By 06:30 GMT, Brent crude futures had declined $3.65, or 4.2%, to $83.68 per barrel, while U.S. West Texas Intermediate crude fell $4.13, or 4.9%, to $80.75 per barrel.
Both contracts reached their lowest point since 10 March after dropping more than 3% on Friday as expectations for a diplomatic breakthrough gained momentum.
Markets have increasingly priced in the possibility that global oil supplies could normalise if restrictions on shipping through the Strait of Hormuz are removed.
Hormuz Reopening Seen as Key Development
Pakistan’s prime minister, whose country has acted as a mediator during the conflict, said a memorandum of understanding between Washington and Tehran is expected to be signed in Switzerland on Friday.
President Donald Trump stated that the Strait of Hormuz would reopen on a “toll free” basis and that the U.S. naval blockade of Iranian ports would also be lifted.
Meanwhile, Iran’s semi-official Mehr news agency reported that the draft agreement envisages reopening the waterway within 30 days under Iranian supervision.
Traders Remove Geopolitical Premium
Analysts said the market reaction reflects a rapid reassessment of geopolitical risks that had driven oil prices higher during the conflict.
“The geopolitical risk premium that had been built into crude is now being unwound quite aggressively as traders price in the prospect of restored oil flows,” said Tim Waterer, chief market analyst at KCM Trade.
The prolonged disruption of traffic through the Strait of Hormuz removed a significant volume of oil and gas from international markets. Prior to the conflict, approximately 20% of global oil and LNG shipments passed through the route.
Supply Recovery Still Faces Challenges
Despite the optimism surrounding the agreement, investors remain focused on how quickly Middle Eastern producers can restore exports and whether shipping activity will recover smoothly.
Market participants are also assessing the extent of any infrastructure damage caused during the conflict and the potential impact on production capacity.
According to Commonwealth Bank of Australia commodities strategist Vivek Dhar, “While these uncertainties suggest upside risks to our forecast for Brent oil futures to reach $80/bbl by the end of the year, it’s worth noting that oil flows through the Strait of Hormuz just needs to reach 60-70% of pre-war levels to return oil markets to pre-war oversupply expectations.”
Focus Shifts to Compliance and Supply Normalisation
Iranian Deputy Foreign Minister Kazem Gharibabadi said negotiations on a broader settlement would continue during a 60-day ceasefire period.
At the same time, the E4 countries — the United Kingdom, France, Germany and Italy — signalled their willingness to remove sanctions on Iran if progress is made on nuclear-related issues.
Analysts believe the next phase of market attention will focus on implementation rather than announcements.
“Beyond the immediate price reaction, attention will now shift toward the pace of actual supply normalization and compliance with the agreement,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
She added: “While the conflict may have come to an end and oil flows through the Strait of Hormuz may gradually return to normal, the damage already done cannot be reversed overnight. This includes not only any physical damage to oil infrastructure but also the economic strain endured by oil importing economies that have faced elevated energy costs for months.”
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