BY COMFORT OGBONNA
Global oil prices plunged to their lowest levels in three months on Monday after signs of a diplomatic breakthrough between the United States and Iran eased fears of prolonged supply disruptions in the Middle East. Investors reacted positively to reports that both sides had reached a preliminary agreement aimed at ending months of conflict and restoring shipping activity through the strategically vital Strait of Hormuz.
Brent crude futures dropped $3.65, or 4.2%, to $83.68 per barrel by early trading, while U.S. West Texas Intermediate (WTI) crude fell $4.13, or 4.9%, to $80.75 per barrel. Both benchmarks touched their weakest levels since March 10, extending losses after already declining more than 3% during the previous trading session.
The sharp decline reflects growing optimism that oil exports from the Gulf region could soon return to more normal levels following months of disruption caused by the conflict. Market participants have been closely monitoring developments in the region, where the closure of the Strait of Hormuz significantly reduced the flow of crude oil and liquefied natural gas to global markets.
Pakistan, which has played a key role in facilitating negotiations between Washington and Tehran, announced that the two countries are expected to sign a memorandum of understanding in Switzerland on Friday. The agreement is seen as an important first step toward a broader settlement that could reduce tensions across the region and help stabilize global energy markets.
U.S. President Donald Trump said on Sunday that the Strait of Hormuz would once again be open to international shipping without restrictions and confirmed that a U.S. naval blockade of Iranian ports would be lifted. His comments fueled expectations that one of the world’s most important energy corridors could soon resume normal operations.
Iranian media also reported progress in negotiations, with the semi-official Mehr news agency stating that the draft agreement includes plans to reopen the Strait of Hormuz within 30 days under arrangements coordinated by Tehran. Such a move would mark a major turning point after more than three months of disruptions that affected global supply chains and contributed to higher energy prices worldwide.
Analysts said the market reaction reflects the rapid unwinding of a geopolitical risk premium that had been built into crude prices during the conflict. As fears of supply shortages begin to ease, traders are adjusting their positions to reflect the possibility of increased oil availability in the months ahead.
The Strait of Hormuz remains one of the most important chokepoints in global energy trade, serving as a transit route for roughly one-fifth of the world’s oil supplies as well as significant volumes of liquefied natural gas. Its closure during the conflict removed millions of barrels of oil and gas from international markets, contributing to heightened volatility and concerns about energy security.
Despite the optimism surrounding the agreement, investors remain cautious about how quickly production and exports can recover. Energy infrastructure across parts of the region has suffered damage during the conflict, and it may take time for producers to restore operations to pre-war levels. Shipping companies are also expected to proceed carefully before fully returning vessels to routes through the Gulf.
Market observers noted that even a partial restoration of oil flows could significantly alter the supply outlook. Analysts estimate that if shipments through the Strait of Hormuz recover to between 60% and 70% of pre-conflict levels, the global oil market could return to conditions that existed before the war, when concerns centered on excess supply rather than shortages.
Further negotiations are expected in the coming weeks. Iran’s Deputy Foreign Minister Kazem Gharibabadi said a more comprehensive agreement would be discussed during a proposed 60-day ceasefire period. The talks are expected to address broader issues beyond maritime access, including regional security concerns and Iran’s nuclear program.
Adding to the positive sentiment, the E4 nations — the United Kingdom, France, Germany, and Italy — indicated on Sunday that they are prepared to consider lifting sanctions on Iran if Tehran takes meaningful steps regarding its nuclear activities. The possibility of sanctions relief could further boost Iran’s ability to export oil and re-enter global energy markets more fully.
While the immediate reaction in oil markets has been overwhelmingly positive, analysts caution that the effects of the conflict will not disappear overnight. Months of disrupted trade have left lasting economic consequences for many countries, particularly oil-importing nations that have struggled with elevated fuel and energy costs.
The damage extends beyond physical infrastructure, affecting economic growth, industrial production, transportation costs, and inflation levels in numerous economies. Even if peace efforts continue to advance and energy supplies gradually normalize, governments and businesses around the world may continue to feel the impact of the crisis for months to come.
For now, however, traders are focusing on the prospect of renewed oil flows and reduced geopolitical tensions. As negotiations progress and details of the agreement become clearer, global energy markets are likely to remain highly sensitive to developments that could determine the pace of recovery in one of the world’s most critical oil-producing regions.
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