Oil Prices Fall on US-Iran Talk Hopes as IEA Warns of Demand Destruction

Global markets caught a breath of relief Tuesday as hopes for resumed US-Iran negotiations eased immediate fears of deeper energy chaos. Oil prices dropped while Asian stock indexes surged, even as the International Energy Agency warned that supply shocks from the Middle East conflict are spreading "demand destruction" and could trigger the sharpest contraction in global oil use since the COVID-19 pandemic. President Donald Trump said Iranian officials had reached out expressing eagerness for a deal. "We've been called by the other side, and they would like to make a deal very badly," he told reporters at the White House. The comments followed weekend talks in Islamabad that ended without agreement, with US officials stating the next steps depend on Tehran meeting conditions particularly on its nuclear program.

Brent crude fell as much as 1.5 percent to below $98 a barrel after briefly topping $103 last week, according to trading data tracked by CNBC and Al Jazeera. West Texas Intermediate crude dropped 1.86 percent to $97.24. Japan's Nikkei 225 climbed as much as 2.5 percent, South Korea's KOSPI rose 3.7 percent, and gains rippled through Hong Kong, Singapore and Shanghai indexes, building on a 1 percent advance in the S&P 500 overnight. The moves reflect trader bets that diplomatic progress could offset the impact of a US naval blockade imposed on Iranian ports and the broader disruptions since late February.

At the center of the tension is whether fresh talks can materialize before the conflict's supply effects deepen. The IEA said global oil demand is now forecast to contract by 80,000 barrels per day this year, a reversal from its previous projection of 640,000 barrels per day growth. It expects a 1.5 million barrel per day decline in the second quarter, the largest since the pandemic, with initial cuts in the Middle East and Asia Pacific for naphtha, LPG and jet fuel now spreading as scarcity and higher prices persist. The agency described the March supply disruption of 10.1 million barrels per day as the largest in history. Iran sharply curtailed shipping through the Strait of Hormuz, a conduit for roughly one-fifth of global oil and gas flows, after US and Israeli strikes began on February 28. Maritime data from Windward showed only 21 vessels transiting the strait on Sunday against a pre-conflict average near 130.

The US clarified its blockade, launched Monday, targets only vessels entering or exiting Iranian ports rather than fully sealing the waterway, a scaling back of Trump's initial rhetoric threatening the strait itself. Vice President JD Vance, who led the US delegation in Pakistan, said after the failed talks that "the ball is in the Iranian court." Reuters reported sources indicating talks could resume in Islamabad as soon as this week. Iran has maintained limited tanker movements despite the restrictions. The IEA noted that resuming flows through the strait remains the single most important variable for easing pressure on prices and the global economy, while warning countries against hoarding stocks.

Businesses are already feeling the volatility. BP reported "exceptional" oil trading performance in the first quarter, when Brent averaged $81.13 per barrel compared with $63.73 in the prior quarter. The company forecast net debt rising to $25-27 billion from $22.2 billion due to higher working capital needs in the volatile environment, according to its trading update ahead of full results on April 28. OPEC separately lowered its second-quarter demand forecast but left its full-year outlook unchanged. Russia, meanwhile, saw its crude exports rise 270,000 barrels per day to 4.6 million in March, boosting revenues that support its budget and military spending after earlier declines tied to the Ukraine conflict and pipeline issues.

Analysts caution that sustained blockade or further escalation could push prices higher and widen economic damage. The precise scale of any resumed talks, Iran's response to US nuclear demands, and the blockade's long-term effect on 1.7 million barrels per day of Iranian exports remain unresolved. A reader following only these market swings would miss that the current price dip follows both a massive supply shock and unsuccessful diplomacy just days earlier.