Oil prices tumbled to their lowest level in more than three months on Monday after the United States and Iran announced a breakthrough agreement to end their conflict and reopen the strategically vital Strait of Hormuz, easing fears of prolonged disruptions to global energy supplies.
Brent crude, the international benchmark, fell 4.2 percent to $83.68 a barrel in early trading, while US West Texas Intermediate dropped 4.9 percent to $80.75. Both contracts touched their lowest levels since March 10, extending losses recorded at the end of last week.
The sharp decline came after US President Donald Trump and Iranian officials confirmed that an initial peace agreement had been reached following months of conflict that had severely disrupted oil shipments through the Gulf.
Pakistan Prime Minister Shehbaz Sharif, whose country helped mediate negotiations between Washington and Tehran, said the two sides would sign a memorandum of understanding in Switzerland on Friday.
Trump said on Sunday that the Strait of Hormuz would reopen and that the United States would end its naval blockade of Iranian ports.
“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 Strait of Hormuz is one of the world’s most important energy corridors, carrying roughly a fifth of global oil and liquefied natural gas supplies. Its closure during the conflict removed millions of barrels of oil and gas from international markets, contributing to higher energy prices and inflationary pressures worldwide.
Iran’s semi-official Mehr news agency reported that the draft agreement calls for the strait to reopen within 30 days under arrangements overseen by Tehran.
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Investors welcomed the prospect of renewed exports from the Gulf region, although analysts cautioned that a full recovery in supply could take time.
Oil infrastructure across parts of the Middle East suffered damage during the conflict, while shipping operators remain cautious about returning vessels to the region until security conditions improve.
Market participants are also monitoring the pace at which major producers can restore production and export capacity after months of disruption.
“While these uncertainties suggest upside risks to our forecast for Brent oil futures to reach $80 per barrel by the end of the year, it’s worth noting that oil flows through the Strait of Hormuz just need to reach 60 to 70 percent of pre-war levels to return oil markets to pre-war oversupply expectations,” said Vivek Dhar, commodities strategist at Commonwealth Bank of Australia.
Iranian Deputy Foreign Minister Kazem Gharibabadi said a broader agreement covering longer-term issues would be negotiated during a 60-day ceasefire period envisaged under the initial accord.
The diplomatic breakthrough also drew support from European powers. Britain, France, Germany and Italy signalled on Sunday that they would be prepared to ease sanctions on Iran if Tehran takes meaningful steps to address concerns surrounding its nuclear programme.
Analysts said the market’s focus would now shift from the announcement itself to implementation of the agreement and the speed with which energy supplies return to global markets.
“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 noted that while the end of hostilities would improve market sentiment, the economic effects of months of disruption would not disappear immediately.
“The damage already done cannot be reversed overnight,” she said, pointing to both physical damage to energy infrastructure and the economic burden carried by oil-importing nations during the crisis.
Despite those concerns, Monday’s sell-off underscored growing confidence among traders that one of the biggest threats to global energy markets this year may be easing.
If the agreement holds and oil exports through the Strait of Hormuz resume in the coming weeks, analysts say energy markets could return to surplus conditions sooner than previously expected, potentially providing relief for consumers and central banks grappling with elevated inflation.
