Oil prices fell sharply on Wednesday after reports that the United States and Iran were nearing a preliminary agreement aimed at ending a conflict that has severely disrupted global energy supplies and trade routes.
International benchmark Brent crude dropped about 6.9 percent to US$103.23 per barrel, while U.S. West Texas Intermediate slid nearly 7 percent to US$95.22, as optimism grew over a potential diplomatic breakthrough.
The sell-off followed an Axios report citing U.S. officials and sources familiar with the discussions, saying Washington and Tehran were close to a 14-point memorandum of understanding that could lay the groundwork for a broader peace deal and renewed nuclear negotiations.
A spokesperson for Iran’s Foreign Ministry told CNBC that Tehran was “evaluating” the proposal, adding that any agreement would need to be “fair.”
However, uncertainty remained high after U.S. President Donald Trump expressed skepticism that a final agreement would be reached, warning that military action could resume if talks failed.
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“If they don’t agree, the bombing starts, and it will be, sadly, at a much higher level and intensity than it was before,” Trump said in a social media post, underscoring the fragility of the negotiations.
According to the Axios report, the White House believes both sides are close to agreeing on a framework document that would set the stage for detailed nuclear and security talks. Officials said Iran is expected to respond to key elements of the proposal within 48 hours, though no final commitments have been made.
The prospect of easing tensions between Washington and Tehran immediately sent oil markets lower, reversing recent gains driven by fears of prolonged disruption in the Middle East.
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The conflict, which erupted earlier this year, has already caused major disruption to global shipping routes, particularly through the strategic Strait of Hormuz, through which a significant share of the world’s oil supply passes.
Energy analysts said the possibility of restored flows through the chokepoint was a major factor driving Wednesday’s price collapse.
“A deal that normalises oil flows through the Strait of Hormuz is crucial,” said Warren Patterson, head of commodities strategy at ING ING Group, noting that supply disruptions have forced heavy reliance on global inventories, which are now tightening.
“Roughly 13 million barrels per day of disrupted supply is being largely offset by inventory, which is clearly declining rapidly. This leaves the market more vulnerable with each passing day,” Patterson added.
He warned that even incremental progress toward reopening trade routes could significantly increase volatility in energy markets.
The Trump administration also announced a temporary suspension of a military operation dubbed “Project Freedom,” which had been launched to escort commercial vessels through the Persian Gulf. Officials cited progress in diplomatic negotiations as the reason for the pause.
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Roughly 23,000 seafarers across vessels from 87 countries remain stranded in the region, according to U.S. estimates, after heightened security risks and navigation disruptions in the waterway.
Market analysts said the scale of the supply shock had already begun to weigh on global demand, with rising energy prices contributing to broader economic strain.
Nicolo Bocchin, co-head of fixed income at Azimut Group, warned that even if an agreement is reached, normalization of shipping and trade flows would take weeks, if not longer.
“Even in the best-case scenario, you still have a significant lag before logistics and supply chains fully recover,” he said.
The latest price movements underscore how sensitive global energy markets remain to geopolitical developments in the Middle East, particularly around Iran’s role in regional security and oil transit routes.
While traders welcomed the possibility of de-escalation, uncertainty over the durability of any agreement kept markets volatile, with analysts cautioning that sentiment could quickly reverse if talks falter.
For now, investors are closely watching diplomatic signals from both Washington and Tehran, as well as developments in maritime security in one of the world’s most critical energy corridors.
