Oil prices dropped sharply on Monday, hitting their lowest level in three months, after signs of progress in talks between the United States and Iran raised hopes of an end to the conflict and a return of shipping through a key global energy route.
Brent crude fell by $3.65, or 4.2 percent, to $83.68 per barrel by 0630 GMT. US West Texas Intermediate also slid, dropping $4.13, or 4.9 percent, to $80.75. Both benchmarks touched their weakest levels since March 10, extending losses after a decline of more than 3 percent at the end of last week.
The sell-off came after US President Donald Trump and Iran’s deputy foreign minister indicated that an initial agreement had been reached to wind down hostilities and reopen the Strait of Hormuz, a vital passage for global oil shipments.
According to statements from the US side, the route could be reopened without charges, while a US naval blockade of Iranian ports would also be lifted. Iran’s semi-official Mehr news agency reported that a draft arrangement would see the Strait reopened within 30 days under Iranian oversight.
Pakistan’s prime minister said the two sides are expected to sign a memorandum of understanding in Switzerland on Friday, with Islamabad playing a mediating role in the process.
Market analysts said the move quickly removed a large chunk of the geopolitical risk that had been built into oil prices over recent months.
Tim Waterer, chief market analyst at KCM Trade, said traders were now pricing in the possibility of restored oil flows, which had led to an aggressive unwind in the risk premium.
The Strait of Hormuz, one of the world’s most important energy chokepoints, handles a significant share of global oil and liquefied natural gas shipments. The conflict had disrupted flows for more than three months, removing millions of barrels from the market and tightening supply conditions.
Attention is now shifting to how quickly production and exports can recover across the Middle East, especially after damage to infrastructure during the conflict. Traders are also watching whether shipping activity in the region returns to normal levels.
Some analysts cautioned that while prices have fallen, uncertainty remains over how fast supply will stabilise. Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia, said that even partial recovery of flows could be enough to shift the market back into oversupply conditions later in the year.
Iran’s deputy foreign minister, Kazem Gharibabadi, also said a wider agreement would be discussed during a 60-day ceasefire period, suggesting negotiations are far from complete.
Meanwhile, the E4 group, which includes the UK, France, Germany and Italy, said it was open to lifting sanctions on Iran if progress is made on its nuclear programme.
Priyanka Sachdeva, senior market analyst at Phillip Nova, said the focus would now move from the announcement itself to how quickly supply normalises and whether both sides comply with the terms of the deal.
She added that even if oil flows resume, the impact of the conflict will not disappear quickly, pointing to lasting strain on energy markets and higher costs already absorbed by importing economies.