Global oil prices tumbled more than 4 percent on Monday, falling to their lowest levels since March, after the United States and Iran announced an initial agreement aimed at ending months of conflict and reopening the strategically important Strait of Hormuz.
The sharp decline reflects growing expectations that global oil and gas supplies disrupted by the conflict could soon return to international markets, easing concerns over energy shortages and supply bottlenecks.
Brent crude futures fell by $3.58, or 4.1 percent, to $83.75 per barrel, while U.S. West Texas Intermediate crude dropped $4.01, or 4.72 percent, to $80.87 per barrel. The losses extended declines recorded at the end of last week as traders responded positively to developments in the Middle East.
The breakthrough follows statements from U.S. President Donald Trump and Iran’s Deputy Foreign Minister, Kazem Gharibabadi, indicating that both sides had reached an initial understanding to halt hostilities.
According to reports, the agreement is expected to be formalized through a memorandum of understanding to be signed in Switzerland later this week. Trump also announced that the Strait of Hormuz would reopen to shipping without restrictions and that a U.S. naval blockade of Iranian ports would be lifted.
Strait of Hormuz Central to Global Energy Flows
The Strait of Hormuz is one of the world’s most critical energy transit routes, handling roughly one-fifth of global oil and liquefied natural gas supplies.
Its closure during the conflict disrupted millions of barrels of daily oil and gas exports, pushing prices higher and increasing volatility across global markets.
“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.
Analysts say the reopening of the waterway could significantly improve supply conditions, even if flows initially return at only a fraction of pre-war levels.
Uncertainty Remains Despite Optimism
While markets welcomed the peace initiative, investors remain cautious about how quickly oil production and exports can recover following months of disruption.
Iranian officials have indicated that broader negotiations, including discussions on the country’s nuclear programme, will continue during a proposed 60-day ceasefire period. Meanwhile, European powers have signaled a willingness to consider easing sanctions if progress is made.
Market analysts believe lingering geopolitical uncertainties could limit further sharp declines in crude prices in the near term.
Nevertheless, the agreement marks a significant step toward restoring stability in global energy markets after months of disruption and heightened supply concerns.
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