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

Oil prices dropped sharply Monday as investors responded to signs that negotiations between the United States and Iran could produce an agreement to reopen the Strait of Hormuz. Brent crude fell more than 5 percent to around 98 dollars a barrel in early trading, while West Texas Intermediate slid nearly 6 percent to near 91 dollars. Asian equity indexes advanced, with Japan's Nikkei rising more than 3 percent, though several major markets remained closed for holidays.

The price movement reflected optimism that a deal could restore the flow of oil and liquefied natural gas through the strait, which carries roughly one fifth of global supply. The waterway has been effectively closed since the conflict began in late February, contributing to higher energy costs and complicating inflation forecasts in import-dependent economies. Analysts noted that markets were shifting from pricing in sustained geopolitical risk toward expectations of lower energy costs if traffic resumes without new restrictions.

President Trump said over the weekend that talks had produced a largely negotiated memorandum of understanding and that he had discussed the framework with leaders in Saudi Arabia, the United Arab Emirates and Qatar. He later cautioned his negotiating team against rushing an incomplete agreement. Secretary of State Marco Rubio, speaking in New Delhi, described the process as ongoing and said the administration would accept either a sound deal or pursue other options. Iranian officials acknowledged progress on many issues but stated that a final agreement was not imminent, underscoring remaining disagreements over Iran's enriched uranium stockpile and any conditions attached to passage through the strait.

The prospect of reopening the waterway without Iranian tolls or future closure threats has drawn particular attention from market participants. Former CIA director David Petraeus described Iran as appearing to be in the process of accepting such terms, though he noted that any arrangement granting Tehran lasting leverage over the strait could strengthen its position despite military setbacks. Lower oil prices have already eased some inflation concerns, supporting a modest rise in gold and contributing to a weaker dollar. Spot gold climbed above 1 percent, while the dollar traded near its lowest level in a week.

The three-month conflict has reshaped expectations for monetary policy. Higher gasoline prices tied to the disruption had previously raised the possibility of more persistent inflation and delayed interest rate cuts. With energy costs now easing, some traders have adjusted forecasts for Federal Reserve action later this year. Equity futures pointed to gains in the United States when markets reopen, though participants cautioned that thin liquidity and unresolved details could limit the durability of the rally.

Regional officials familiar with the talks said the emerging framework would also require Iran to relinquish a portion of its highly enriched uranium. That element remains one of the more contentious points, and Iranian statements Monday suggested it has not yet been settled. The combination of progress reports and explicit caveats has left markets focused on the tone of official comments rather than any specific timeline.

Broader economic effects could extend beyond immediate energy prices. A sustained decline in oil costs would reduce input expenses for manufacturers and transportation firms, potentially supporting consumer spending in economies that have faced elevated living costs since the conflict began. At the same time, uncertainty over enforcement mechanisms and verification of any uranium commitments could keep volatility elevated until a final text is reached and implemented.