Oil Prices Slide as Markets Weigh Iran–U.S. Ceasefire Progress and Uncertainty Over Key Supply Routes

BY EMMANUEL OGBONNA

Global oil prices continued to drift lower on Tuesday as traders assessed the implications of a tentative agreement aimed at easing tensions between the United States, Israel, and Iran, while also weighing uncertain physical supply conditions and incomplete details surrounding the proposed deal.

The market reaction reflected a broader hesitation among investors, with expectations of restored oil flows through strategic shipping lanes competing against ongoing concerns about demand signals and uneven global import activity.

By early trading in Asia, Brent crude futures had declined by 45 cents, or 0.5%, to $82.72 a barrel, while U.S. West Texas Intermediate crude slipped 24 cents, or 0.3%, to $80.51 a barrel. The modest declines followed a sharper move in the previous session, when prices fell nearly 5% to their lowest closing level since early March. That sell-off was triggered after U.S. President Donald Trump announced that a memorandum of understanding had been reached to end hostilities involving Iran, although officials have yet to publish detailed terms of the arrangement.

The earlier conflict had disrupted global energy logistics, including activity through the Strait of Hormuz, a critical maritime chokepoint that typically handles roughly one-fifth of global oil shipments. At the height of the tensions, flows through the waterway were significantly constrained, intensifying volatility in global energy markets and raising concerns about supply security across Asia, Europe, and North America.

Market participants are now focused on whether the tentative diplomatic breakthrough will lead to a gradual reopening of the Strait and a restoration of disrupted shipping routes. Some analysts expect a phased return of tanker traffic in the coming weeks, although they caution that logistical normalisation will take time even under favourable conditions.

Morgan Stanley analysts noted that a full recovery of oil transportation flows is unlikely to be immediate, estimating that several weeks may be required before tanker movements return to pre-disruption levels. In their assessment, production recovery could reach around half of normalised levels by September, potentially rising to 80% by December if conditions continue to stabilise. The bank also suggested that this timeline may prove somewhat faster than earlier projections, depending on geopolitical developments and maritime security assurances.

Despite expectations of improving supply conditions, underlying physical market indicators continue to signal weakness. Analysts point to elevated U.S. crude exports combined with subdued demand from China as key factors weighing on near-term price momentum. These opposing trends have created an imbalance in global trade flows, with surplus barrels in some regions offset by reduced purchasing activity in major importing economies.

China’s import data has been a particularly important pressure point. Crude imports into the country fell sharply in May, dropping by nearly 29% to their lowest level in eight years. The decline underscores weaker industrial demand and refinery activity, and analysts expect imports from major suppliers such as Saudi Arabia to remain under pressure in the coming months.

Initial reports surrounding the U.S.–Iran understanding suggest that the agreement could pave the way for a temporary reopening of the Strait of Hormuz and an extension of a ceasefire period by approximately 60 days. This window would allow negotiators to address more complex issues, including the future structure and limitations of Iran’s nuclear programme, which remains a central sticking point in broader diplomatic discussions.

Iranian President Masoud Pezeshkian described the preliminary agreement as an important step toward de-escalation, while also emphasising that a durable and comprehensive settlement has yet to be finalised. His comments highlighted the fragile nature of the current truce framework and the possibility that negotiations could still break down if core disagreements remain unresolved.

The absence of a fully detailed agreement has limited the extent of bearish pressure on oil prices, with traders cautious about pricing in a sustained supply recovery before concrete implementation steps are confirmed. The market response has therefore remained measured, with volatility contained but sentiment still fragile.

Energy analysts have noted that the structure of the agreement will be critical in determining market direction over the coming weeks. One senior energy strategist at DBS Bank described the initial phase of the deal as relatively straightforward, suggesting it primarily serves to extend a temporary ceasefire and create diplomatic breathing space rather than resolve deeper geopolitical disputes. According to this view, the arrangement effectively postpones more difficult negotiations rather than concluding them.

Attention is now shifting to what analysts describe as the second and more consequential phase of the process: the practical reopening of the Strait of Hormuz and the potential unwinding of maritime restrictions affecting Iranian oil shipments. This stage is expected to have a more direct and immediate impact on physical oil flows and pricing structures.

Market experts warn that any delay, partial reopening, or inconsistent enforcement of shipping access could quickly reintroduce volatility into crude markets. Uncertainty surrounding trust between the parties, combined with the complexity of coordinating naval and commercial shipping operations, is expected to remain a key risk factor.

A senior Iranian official has indicated that Tehran would pause certain nuclear-related activities pending a final agreement, including restrictions on uranium enrichment expansion and limitations on nuclear facility development. However, without a permanent framework in place, these commitments are widely viewed as reversible, further contributing to cautious sentiment among traders.

Overall, oil markets remain caught between expectations of improved global supply conditions and persistent uncertainty over the durability of diplomatic progress. While the prospect of restored flows through the Strait of Hormuz has eased immediate geopolitical risk premiums, analysts caution that incomplete negotiations and fragile enforcement mechanisms could quickly reverse recent price declines if tensions re-emerge.