Oil prices dropped to their lowest level in three months on Monday after U.S. President Donald Trump and Iran’s Deputy Foreign Minister announced that both countries had reached a preliminary agreement aimed at ending the conflict and reopening the strategically important Strait of Hormuz.
Brent crude futures fell by $4.33, nearly five per cent, to $83.00 per barrel as of 0840 GMT, while U.S. West Texas Intermediate (WTI) crude declined by $4.54, or 5.35 per cent, to $80.34 per barrel. Both benchmarks touched their weakest levels since March 10 after already losing more than three per cent on Friday.
The sharp decline followed reports that the United States and Iran had agreed on a framework to de-escalate tensions and restore maritime traffic through the Strait of Hormuz, one of the world’s most critical oil transit routes.
According to Pakistan’s Prime Minister, whose country played a mediating role in the negotiations, both nations are expected to sign a memorandum of understanding in Switzerland on Friday.
Trump stated on Sunday that the Strait of Hormuz would reopen and operate “toll free,” while confirming that the U.S. naval blockade of Iranian ports would also be lifted.
Iran’s semi-official Mehr news agency reported that the draft agreement includes plans to reopen the Strait of Hormuz within 30 days under arrangements coordinated by Tehran.
Despite the positive market reaction, analysts cautioned that a full recovery in global oil flows may take time.
Tamas Varga, an analyst at PVM Oil Associates, said:
“It will take time for oil to approach the pre-crisis level of 20 million barrels per day sailing through this chokepoint. Estimates of the full resumption of traffic vary from weeks to months.”
“Financial investors are, therefore, merely borrowing future physical supply, hence the current cheapening of oil prices. The slow resumption will possibly result in a supply deficit throughout 2026.”
The closure of the Strait of Hormuz for more than three months significantly disrupted global energy markets, cutting off millions of barrels of oil and gas supplies and affecting nearly one-fifth of the world’s oil and liquefied natural gas shipments.
Market participants are also closely monitoring the pace at which Middle Eastern producers can restore production and export capacity, particularly in areas where infrastructure suffered damage during the conflict.
Priyanka Sachdeva, Senior Market Analyst at Phillip Nova, noted:
“The damage already done cannot be reversed overnight. This includes not only any physical damage to oil infrastructure but also the economic strain endured by oil importing economies that have faced elevated energy costs for months.”
Iran’s Deputy Foreign Minister, Kazem Gharibabadi, indicated that a broader agreement would be negotiated during a proposed 60-day ceasefire period, suggesting that several key issues remain unresolved.
One of the most sensitive matters still under discussion is Iran’s nuclear programme, which sources say will be addressed during subsequent negotiations.
Meanwhile, Israeli Defence Minister Israel Katz signalled that Israel remains cautious about the agreement. He stated that Israeli forces would continue to maintain security zones in Lebanon, Syria and Gaza indefinitely to safeguard Israel’s borders and settlements.
The diplomatic breakthrough also drew support from Europe. The E4 nations — the United Kingdom, France, Germany and Italy — announced on Sunday that they are prepared to ease sanctions on Iran if Tehran takes further steps regarding its nuclear activities.
While uncertainty remains over the long-term durability of the agreement, financial markets have welcomed the development as a potential turning point for global energy supplies, inflation pressures and economic stability.
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