Oil Slides 4% After Trump Confirms Iran Deal Reopening Hormuz

Oil prices fell sharply Monday after U.S. President Donald Trump and Iran’s deputy foreign minister confirmed an initial deal to end the war and resume traffic through the Strait of Hormuz, pushing Brent crude below $84 a barrel for the first time since March.

Brent futures dropped $3.58, or 4.10 percent, to $83.75 by 0004 GMT. U.S. West Texas Intermediate lost $4.01, or 4.72 percent, to $80.87. Both contracts had already shed more than 3 percent on Friday as news of the talks leaked.

“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 agreement will be formalized through a memorandum of understanding signed in Switzerland on Friday, according to Pakistan’s prime minister, whose country mediated the talks. Trump said Sunday the Strait of Hormuz would be open “toll free” and that the U.S. naval blockade of Iranian ports would end.

Iran’s semi-official Mehr news agency reported the draft deal calls for reopening the strait within 30 days under Iranian arrangements. The war closed the chokepoint for more than three months, cutting off millions of barrels of oil and liquefied natural gas supply through a route that normally handles a fifth of global traffic.

Supply Unwind and the Oversupply Baseline

The selloff reflects the sheer size of the premium traders had built into crude since the conflict began. Brent traded above $90 for most of the war period. Now the market faces a more mundane question: how much of the lost supply returns, and how fast.

Investors are watching how quickly Middle Eastern producers can resume output after war damage and whether enough ships will re-enter the region to move the volumes. “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 is worth noting that oil flows through the Strait of Hormuz just needs to reach 60 to 70 percent of pre-war levels to return oil markets to pre-war oversupply expectations,” Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia, said in a note.

That threshold frames the disconnect. A partial restart of shipping, not a full return to pre-war throughput, would be enough to flood a market that was already tilting toward surplus before the war. The pre-war consensus called for Brent at $75 to $80 on rising non-OPEC supply and soft demand growth.

Nuclear Talks Put a Floor on Further Declines

Iran’s deputy foreign minister, Kazem Gharibabadi, said a broader agreement would be negotiated during a 60-day ceasefire period. The E4 nations – the U.K., France, Germany and Italy – said Sunday they were prepared to lift sanctions on Iran in response to steps on its nuclear program.

That concession gives Tehran an economic incentive to de-escalate that it lacked during the first three months of the war. It also creates a lower bound on the crude selloff, at least for now. “Given the uncertainties around the next round of negotiations over the next 60 days, particularly around the nuclear aspect, it is hard to see crude oil prices falling too much further from here immediately,” IG market analyst Tony Sycamore said.