Crude oil prices plunged more than 5% in early Asian trading on Monday after the United States suspended its bombing campaign against Iran, prompting traders to unwind some of the geopolitical risk premium built into the market. Brent crude futures fell $4.89, or 5.05%, to $91.89 a barrel, briefly dipping below $90, while West Texas Intermediate dropped $4.67, or 5.23%, to $84.64. Both benchmarks touched their lowest levels in nearly a week, snapping three consecutive weekly gains.
The sharp decline does not signal an end to the Iran crisis, but rather reflects a reduced probability of an immediate supply shock. The situation in the Strait of Hormuz remains severely constrained, and the pause remains fragile. As renewed Strait of Hormuz tensions have shown, any escalation could quickly reverse the selloff.
War premium unwinds, but uncertainty persists
The US decision to halt its bombing campaign opened a window for diplomacy after 13 nights of strikes. Iran responded by saying it would also hold fire as long as Washington maintained its pause, though an Iranian official described Tehran as more skeptical than optimistic about the latest lull. Oil markets often react sharply to changes in the perceived likelihood of disruption, and with an immediate escalation appearing less likely, traders reduced positions that had helped push Brent above $100 as Hormuz shipments slowed and attacks spread toward the Red Sea.
“Hopes are rising that a genuine diplomatic path may be opening,” IG Markets analyst Tony Sycamore said in a note. He suggested that returning to an earlier 14-point memorandum, alongside greater clarity over Hormuz, could provide a starting point for de-escalation. The decline also followed a powerful rally—Brent gained nearly 10% last week—encouraging profit-taking as the weekend pause reduced the urgency to hold bullish positions.
TD Securities’ macro research team told The Wall Street Journal that crude was “taking a breather,” with markets easing positions in anticipation, or hope, of another ceasefire. The wording captures the provisional nature of Monday’s selloff: traders are pricing restraint, not resolution.
Hormuz remains the fault line beneath the selloff
The physical oil market has not returned to normal. According to Kpler data, fewer than 10 commodity vessels crossed the Strait of Hormuz each day during the weekend. Traffic through the Bab el-Mandeb Strait also declined on Sunday after Houthi attacks on Saudi oil installations along the Red Sea coast. That route had become more important as Gulf producers sought alternatives to heavily restricted Hormuz shipments.
MST Marquee analyst Saul Kavonic told Reuters that any recovery in Hormuz flows would probably be “slow and partial.” Shipping companies are likely to demand stronger safety assurances before sending more empty tankers into the Gulf. This gap matters: financial traders can remove a war premium within minutes, but rebuilding tanker traffic, insurance capacity, and confidence can take much longer. A renewed attack on ships or export infrastructure could therefore reverse the decline quickly.
The broader context of uneven Gulf export recovery adds another layer of complexity. While OPEC+ supply has risen, the recovery in Gulf exports remains patchy, keeping the market on edge.
Investors should note that the current price action reflects a tactical repricing of risk, not a fundamental resolution of the Iran standoff. The physical supply chain remains disrupted, and any diplomatic misstep could reignite the war premium. As falling energy costs have helped ease inflation fears, the oil market’s trajectory will depend heavily on whether the pause holds and whether Hormuz traffic can resume in a meaningful way.
This article is for informational purposes only and does not constitute financial advice.
