The price of oil plunged sharply Monday as the United States and Iran observed a third consecutive night of halted hostilities, fueling optimism that the two-month conflict could move toward a diplomatic resolution and restore disrupted global energy flows.
Brent crude, the global benchmark, sank more than 9% at one point to 7.59 a barrel, a dramatic reversal from the previous week when prices had surged back above 00 following the collapse of a June ceasefire agreement that had briefly pushed oil down to pre-war levels around 0.
The outbreak of direct US-Iran hostilities in February triggered a sustained spike in energy prices as the conflict effectively closed the Strait of Hormuz, a chokepoint that normally carries roughly 20% of the world’s oil and liquefied natural gas. The strait remained largely impassable for commercial shipping through most of the spring, forcing producers to seek alternative routes and driving up insurance premiums for tanker transit.
When Iran and the US signed a memorandum of understanding in June to halt military operations and reopen the strait, prices fell back sharply. But the ceasefire collapsed earlier this month, reigniting fears over global energy supplies and pushing crude back above 00.
US Ambassador to the UN Dorothy Shea confirmed Sunday and Monday that attacks on Iran had been halted for consecutive nights to give talks space. An Iranian army spokesperson said Sunday that Tehran had also halted what it described as retaliatory strikes in the region, creating the conditions for the current diplomatic window.
Despite the sharp price drop, analysts caution that the situation remains fragile. Susannah Streeter, chief investment strategist at Wealth Club, said markets were cautious given the repeated twists and turns during this conflict. There is still significant uncertainty baked into these prices and a reticence about whether negotiations will lead to a lasting breakthrough, she said.
The conflict has also affected gas markets. Research from Wood Mackenzie showed European gas storage at historic lows, with supply security for this coming winter at risk. Low European inventories, strong Asian demand and limited new LNG supply growth almost guarantee elevated prices through this winter and into 2027, said Massimo Di Odoardo, the firm’s vice president of gas and LNG research.
On the consumer side, the Iran war has pushed up the cost of petrol and diesel in many countries, with knock-on effects on food prices and broader inflation. Before the war began, markets had expected the Bank of England and other central banks to begin cutting interest rates this year. Those expectations have evaporated, and financial markets now price in a potential rate rise toward the end of 2026.
Adding to the complexity, Houthi militia in Yemen backed by Tehran have continued attacking oil tankers in the Red Sea, threatening a key alternative export route that Saudi Arabia had used to bypass the Strait of Hormuz. The Red Sea disruptions have kept a risk premium embedded in crude prices even as the direct US-Iran front cools.
The oil price trajectory now hinges on whether the current pause in hostilities translates into a sustained diplomatic process or proves to be another brief interval before fighting resumes.
