Oil Prices Decline on Prospects of US-Iran Agreement
Oil prices have experienced a significant decline amid growing hopes for a deal that could potentially end the US-Israel conflict involving Iran.
On Saturday, US President Donald Trump announced that an agreement with Tehran had been "largely negotiated" and that details would be revealed soon. However, the following day, he advised his negotiating team not to rush the agreement.
As of Monday morning in Asia, the global oil benchmark Brent crude was down by 5% at $98.36 (£57.10), while US-traded crude fell 5.3% to $91.50.
President Trump had earlier indicated that the deal would include the reopening of the strategically important Strait of Hormuz shipping route, though he did not provide further specifics.
The Strait of Hormuz, a narrow waterway through which approximately one-fifth of the world’s oil and liquefied natural gas (LNG) typically passes, has been effectively closed since the conflict began on 28 February.
On social media Saturday, Trump stated that he had a "very good call" with the leaders of Saudi Arabia, the United Arab Emirates, Qatar, and others regarding a "Memorandum of Understanding pertaining to PEACE."
"An agreement has been largely negotiated, subject to finalization between the United States of America, the Islamic Republic of Iran, and the various other Countries, as listed," Trump said.
"Final aspects and details of the deal are currently being discussed, and will be announced shortly."
He also mentioned a call with Israeli Prime Minister Benjamin Netanyahu on Saturday, which he described as having "went very well."
While the president did not disclose additional details about the deal, he emphasized that any agreement would "absolutely" prevent Iran from acquiring a nuclear weapon.
However, on Sunday, Trump posted on Truth Social:
"Both sides must take their time and get it right. There can be no mistakes!"
Iranian foreign ministry spokesman Esmaeil Baqaei told state television that US and Iranian positions had been converging over the past week. Nevertheless, he cautioned that this did not guarantee agreements on key issues and criticized the US for making "contradictory statements."
Background of the Conflict and Market Impact
Since early March, global energy markets have been unsettled following Iran’s threats to attack ships attempting to transit the Strait of Hormuz, in retaliation for US and Israeli military actions against the country.
Tehran has also launched attacks against Israel and US-allied Gulf states, including Saudi Arabia, Bahrain, and the United Arab Emirates.
A ceasefire was reached in early April, after which Washington and Tehran commenced talks aimed at establishing a long-term peace agreement.
Saul Kavonic, head of energy research at MST Financial, commented on the situation:
"There is now some light at the end of the tunnel, which will bring some near term oil price relief,"
"But even in the most optimistic scenario from here, oil markets will remain tight through 2027 given the time required to normalise oil flows through the Strait, repair damaged oil facilities, and rebuild global oil stocks that have seen record depletion since the war began," he added.
It is noteworthy that UK and US energy and financial markets were closed on Monday due to public holidays.
