Oil prices slid sharply in Asian trade on Tuesday, erasing some of the dramatic gains racked up the previous day as traders clung to signs that Washington and Tehran may yet find a way to end their escalating conflict over the Strait of Hormuz.
Brent crude futures, the global benchmark, dropped 76 cents, or 0.8 percent, to $98.57 a barrel by 06:01 GMT. U.S. West Texas Intermediate crude fell even harder, shedding $1.63 or 1.65 percent to $97.45.
The retreat came after both contracts had surged in the previous session—Brent climbing more than 4 percent and WTI nearly 3 percent—when the U.S. military imposed a blockade on Iran’s ports in retaliation for the collapse of weekend peace talks in Islamabad.
The Strait of Hormuz, the narrow chokepoint through which roughly one-fifth of the world’s oil and gas normally flows, has suddenly become the epicenter of the most significant energy-market shock in memory.
Ship-tracking data showed two vessels reversing course as the blockade took effect. At the same time, the U.S. military announced the operation would extend eastward into the Gulf of Oman and the Arabian Sea.
Yet even as Tehran threatened to strike ports in neighboring Gulf states, investors chose to focus on the faint but persistent signals that diplomacy was not dead. Sources familiar with the negotiations told Reuters that both sides have kept the door open to further dialogue, with one U.S. official speaking of “forward motion” toward an agreement.
President Donald Trump reinforced that message, telling reporters Iran “wants to make a deal”—while stressing that any pact must bar Tehran from acquiring a nuclear weapon.
“Despite the breakdown of peace talks in Pakistan over the weekend, Trump has managed to take some steam out of the oil price, again dangling the carrot of a possible deal,” said Tim Waterer, chief market analyst at KCM Trade.
The rapid price swing underscores the market’s hair-trigger sensitivity. Last month alone, oil futures soared 50 percent — the largest monthly gain on record — as fears of prolonged disruption gripped traders. But analysts caution that even a quick diplomatic breakthrough would not instantly restore supply.
“While supply can restart within days to weeks, restoring output is likely to take months, even for undamaged assets,” Commonwealth Bank of Australia noted in a client report Tuesday. “Resumption of traffic through the Strait was the first domino that needed to fall.”
ANZ analysts put hard numbers on the disruption: roughly 10 million barrels per day of crude supply have already been pulled from the market, with a prolonged blockade threatening an additional 3 million to 4 million bpd. Still, the bank argued that the market no longer requires a “worst-case escalation” to justify elevated prices. “Tight balances alone are sufficient to sustain the price of Brent near or above recent threshold levels,” it said.
NATO allies have so far kept their distance. Britain and France declined to join the U.S. operation, instead urging an immediate reopening of the vital waterway. U.S. Energy Secretary Chris Wright suggested the price spike may prove short-lived, telling markets that once shipping resumes, “prices could peak in the next few weeks.”
The global economic fallout has already drawn stern warnings from the International Monetary Fund, the World Bank, and the International Energy Agency. The three organizations jointly cautioned governments against hoarding energy supplies or imposing export curbs, describing the current shock as the most severe the world has ever faced.
IEA Executive Director Fatih Birol said Monday that strategic petroleum releases are not yet necessary, but the agency stands ready to act if the situation deteriorates. In its latest monthly report, OPEC trimmed its forecast for second-quarter global oil demand by 500,000 barrels per day, reflecting the sudden uncertainty.
For now, the market is betting on de-escalation. Pakistani Prime Minister Shehbaz Sharif said his government continues to work behind the scenes to lower tensions.
Whether that optimism proves justified or whether the blockade hardens into a longer and costlier standoff will determine whether Tuesday’s price relief turns into a lasting truce or merely a brief pause before the next surge.
WHAT YOU SHOULD KNOW
Oil prices fell sharply in Asian trade on Tuesday as diplomatic signals eased fears of a prolonged U.S.-Iran conflict over the Strait of Hormuz.
Despite the ongoing U.S. blockade and recent collapse of talks in Islamabad, both Washington and Tehran have kept the door open to dialogue—with President Trump stating Iran wants a deal (short of allowing nuclear weapons).
The prospect of de-escalation outweighed immediate supply risks for traders, triggering a pullback after last month’s record 50% surge. However, analysts warn that even if shipping resumes quickly, full output restoration could take months, and tight market balances will likely keep prices elevated.
