Oil prices fell steeply on Monday while Asian equities climbed after US officials said a possible agreement with Iran could be near, raising hopes of ending the US-Israel war with Tehran and restoring passage through the Strait of Hormuz. The market reaction matters globally because the chokepoint carries a major share of the world’s oil and liquefied natural gas shipments.
What Happened
In early Monday trading, Brent crude, the global benchmark, dropped 5.5% to $97.90 a barrel, while US crude declined 5.9% to $90.93. The move followed comments from US Secretary of State Marco Rubio, who said during a visit to Delhi that negotiators had a “pretty solid thing on the table” and suggested a deal could come as soon as Monday. President Donald Trump had previously indicated that any agreement would include reopening the Strait of Hormuz, though he did not release detailed terms.
Rubio said talks were still unfinished, adding that negotiators had expected news earlier and might still have updates later in the day. His remarks came after mixed messaging from Trump, who first suggested an agreement was close, then said negotiators should not move too quickly. On Saturday, Trump said he had a “very good call” with leaders from Saudi Arabia, the United Arab Emirates, and Qatar about a peace memorandum, and separately said his conversation with Israeli Prime Minister Benjamin Netanyahu had gone very well.
Iran also signaled cautious movement. Foreign ministry spokesman Esmaeil Baqaei said US and Iranian positions had moved closer over the previous week, while warning that convergence did not guarantee a final settlement on critical issues. He also criticized what he described as conflicting US statements, underscoring that diplomacy remains fragile despite the market optimism.
Impact & Consequences
The immediate effect was a broad risk-on move in Asia, led by Japan. The Nikkei 225 rose 3% and moved above 65,000 for the first time, reflecting expectations that regional energy pressure could ease if Gulf shipping lanes reopen. Japan and South Korea have been especially exposed because both rely heavily on imported energy from Gulf producers.
Even after Monday’s fall, crude remains far above pre-war levels, when Brent traded near $70 a barrel. That keeps fuel costs elevated for importers and leaves inflation risks in place for governments already managing tight monetary conditions. Analysts also caution that a political agreement would not instantly normalize physical flows. Repairing damaged energy infrastructure, clearing maritime hazards, and rebuilding depleted inventories could keep oil markets constrained well beyond the initial diplomatic breakthrough.
Background & Context
The Strait of Hormuz has been effectively shut since the conflict began on 28 February, after Iran threatened to strike vessels attempting to transit the waterway in response to US and Israeli attacks. Under normal conditions, roughly one-fifth of global oil and LNG volumes pass through the strait, making it one of the world’s most critical maritime energy routes.
A ceasefire was reached in early April, opening the door to negotiations between Washington and Tehran on a longer-term arrangement. Since then, energy markets have swung sharply on each new political signal from both capitals. The latest drop in prices reflects relief that hostilities may de-escalate, but market participants remain aware that similar crises in the region have previously produced temporary calm followed by renewed disruption.
International Response
Regional and industry responses reflected cautious optimism rather than celebration. Trump said Gulf leaders had engaged in discussions around a peace framework, indicating broad regional involvement in diplomacy. Israel was also directly in contact with Washington, with Trump saying his call with Netanyahu had been positive. Those contacts suggest any settlement would likely involve multiple governments beyond the US and Iran.
Energy and shipping specialists stressed that confidence will return slowly. Saul Kavonic, head of energy research at MST Financial, said there was “light at the end of the tunnel” for near-term oil price relief but warned balances could remain tight through 2027 due to repair timelines and stock rebuilding. Lars Jensen, chief executive of Vespucci Maritime and a former Maersk director, said shipping lines would stay highly cautious even if a deal is announced, citing unresolved security risks including potential sea mines.
What to Expect Next
Markets now await confirmation of whether US-Iran negotiators can finalize unresolved terms, including security guarantees and a practical timetable for restoring passage through Hormuz. Any formal announcement is likely to trigger another sharp repricing in oil and shipping assets. But traders, governments, and cargo operators will focus less on headline declarations and more on on-the-water safety, vessel movements, and evidence that energy flows are steadily returning.
