Oil Slides 5% as Hopes for Iran Deal Ease Energy Fears

Oil prices tumbled sharply Monday as hopes grew for a deal to end the three-month war between the United States and Iran. Brent crude fell more than 5 percent to around $97.90 a barrel while U.S. benchmark crude dropped nearly 6 percent to $90.93. Asian stock markets climbed in response, with Japan's Nikkei surging over 3 percent early in the session.

President Trump said over the weekend that negotiators had largely worked out a memorandum of understanding with Iran that would reopen the Strait of Hormuz. The vital shipping lane has been shut since late February, cutting off roughly a fifth of global oil and liquefied natural gas shipments. Trump later cautioned his team not to rush any agreement, and Secretary of State Marco Rubio described the talks as still a work in progress during remarks in New Delhi.

Iranian officials struck a similar note of caution. Foreign ministry spokesman Esmail Baqai said large portions of the issues under discussion had been settled but added that a final signing was not imminent. The two sides remain divided over Iran's stockpile of highly enriched uranium and any conditions Tehran might attach to passage through the strait.

Former CIA director David Petraeus told CNBC that Iran appears to be in the process of blinking on the Hormuz question. He said any initial deal would need to ensure the waterway opens without Iranian tolls, traffic controls or future threats of closure. Petraeus noted that Iranian naval and missile forces have been badly damaged by U.S. and Israeli strikes, leaving Tehran with limited conventional options.

The prospect of lower energy prices is already rippling through other markets. Gold rose more than 1 percent as the dollar weakened and inflation fears eased. Equities across Europe and Asia advanced on the reduced geopolitical premium, though trading remained thin with U.S. markets closed for Memorial Day.

For American drivers and businesses, any sustained drop in crude prices would bring welcome relief after months of elevated gasoline costs tied to the conflict. The war has reshaped expectations for Federal Reserve policy, with traders now assigning higher odds to rate hikes later this year rather than cuts. New Fed chair Kevin Warsh took office Friday amid those shifting forecasts.

Skeptics point out that past agreements with Iran have often unraveled once enforcement questions arose. The current talks still face significant hurdles, and Iranian leaders have shown little willingness to fully abandon their nuclear ambitions or regional influence efforts. Markets are pricing in a peace dividend for now, but the history of such negotiations suggests outcomes remain far from certain.