Oil prices tumbled on Monday as the United States and Iran paused their escalating strikes to make “space” for diplomacy.
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The two sides halted fire over the weekend, following 13 consecutive nights of attacks that shattered their deal to end the war and threatened new pain for the global economy.
International benchmark Brent crude oil sank to below $90 a barrel Monday morning, while U.S. crude dropped to around $83 a barrel — both down around 7%. Global markets were also mostly higher, with U.S. stock futures up.
The renewed optimism follows mounting fears of a return to all-out war across the Middle East, as the battle for control of the crucial Strait of Hormuz expanded to the Red Sea, another key waterway for global trade.
President Donald Trump said Thursday that he was considering a “massive attack” to try and break Iran’s grip on the strait, but since then the U.S. and Iran have refrained from attacks for three days.
Jordan, a key U.S. ally, said it downed two drones early Monday, though it was not clear who launched them.
U.S. Ambassador to the United Nations Mike Waltz told NBC News’ “Meet the Press” on Sunday that the decision to halt strikes came in response to ongoing talks between the two sides.
“What the president is doing right now, as we’ve seen all along, is giving some talks some space,” he said, adding that talks were “ongoing,” but that there was “internal fighting” on the Iranian side.
Walz dismissed reporting that U.S. weapons stockpiles are depleted.
Still, Tehran offered limited hope for any ramped up peace efforts.
“Mediators may convey messages from the American side to us concerning regional developments, but at the present time we have no negotiations with the American side,” Foreign Ministry spokesman Esmaeil Baghaei said Monday at a news conference.
He said Tehran would “never allow America to determine the timing of war and peace” and would “continue to defend ourselves for as long as our interests and considerations require.” However, he added that “whenever we feel that we can use diplomacy as a tool to safeguard our national interests, we will certainly use it as an instrument.”
Baghaei maintained that the Strait of Hormuz was “closed.”
Oil prices had soared above $100 per barrel last week for the first time in two months as the conflict spiraled, with Hormuz effectively blocked and new disruption from attacks by Iran-backed Houthi rebels in the Red Sea.
Shipping traffic through both Hormuz and the Bab el-Mandeb chokepoint was extremely limited over the weekend.
Traffic through Bab el-Mandeb appeared to fall on Sunday after the Houthis attacked Saudi oil installations along the Red Sea coast, according to shipping data from Kpler shared with news agency Reuters. Just 11 commodity vessels passed through the strait that day, marking the lowest levels in months.
Meanwhile, transit through the Strait of Hormuz also remained low over the weekend, according to Kpler, with less than 10 commodity vessels passing through the waterway over the weekend.
Prior to the war, some 20% of the world’s oil had transited through the key trade route, with its repeated closure sending energy prices soaring and global markets tumbling throughout the conflict.
“The market seems to be forever seeking good news from an arena that really is not providing any,” said PVM analyst John Evans.
“A stay of military strikes might seem an improvement, but it does not come with any guarantees that oil will soon flow from the area… prices will only continue lower if high prices once again dent demand, not questionable mini-ceasefires.”
On Monday, the semiofficial Iranian Tasnim news agency reported that six vessels had attempted to pass through Hormuz “by switching off their navigation and position systems.” It said one of them “suffered an incident” while the others were returned to the Persian Gulf “under Iran’s decisive management.”
Beyond the Middle East, attacks between Russia and Ukraine have also increasingly focused on shipping, adding another complication for markets.
Iran’s Foreign Ministry accused Ukraine over the weekend of attacking an Iranian commercial vessel in the Caspian Sea, saying one sailor was killed and another injured. The ministry summoned Ukraine’s chargé d’affaires in Tehran in protest.
Ukrainian President Volodymyr Zelenskyy said Kyiv had noted Russia was passing on to Iran its satellite observations in the Middle East to enable Tehran to direct strikes in the region.