Oil Slumps 5% as Strait of Hormuz Reopening Deal Nears

Brent crude fell more than 5 percent to near $83 a barrel as the US and Iran signaled progress toward a deal to reopen the Strait of Hormuz, stripping the geopolitical risk premium from oil and dragging energy stocks lower. President Donald Trump said talks with Tehran would take place Monday, Aug. 3, without setting a deadline for an agreement.

"Gold edged higher after US President Donald Trump delayed a fresh military strike against Iran, easing geopolitical tensions and triggering a sharp decline of nearly $7 per barrel in oil prices," Ravi Singh, chief research officer at Master Capital Services, said. "Softer energy prices reduced fears of persistent inflation, while the US Dollar Index slipped below the 100 mark, lending additional support to bullion."

Trump said Aug. 1 that Iran and other regional countries had sought time to complete a deal that would lead to the "immediate, complete and total" reopening of the Strait of Hormuz and an end to Iran's nuclear threat. The dollar index declined 0.50 percent to 99.42, while Comex gold jumped $61 to $4,151 a troy ounce and silver climbed $2.35 to $60.24. Qatar and Treasury Secretary Scott Bessent separately noted talks to reopen the waterway, reinforcing expectations of a diplomatic breakthrough.

A reopened Strait of Hormuz would restore the flow of roughly 20 million barrels a day of crude through the world's most important energy chokepoint, according to US Energy Information Administration data. That would pressure producer revenue and energy stock valuations while relieving inflation fears for oil-importing economies, though the prospect of Federal Reserve rate hikes remains a headwind for bullion.

Supply Risk Premium Unwinds

The slide marks a sharp reversal from the conflict-driven rally that pushed Brent above $90 a barrel after the US-Iran escalation. Energy stocks fell in tandem as investors unwound positions built on the assumption of sustained disruption to Gulf shipping lanes. The reopening would also ease pressure on downstream industries and oil-importing economies that had absorbed higher fuel costs.

In India, MCX gold October futures rose 0.13 percent to ₹1,43,557 per 10 grams, while MCX silver September contracts gained 0.40 percent to ₹2,18,061 per kilogram in morning trading Monday. The weaker dollar made greenback-denominated bullion cheaper for buyers in other currencies, supporting precious metals even as energy prices tumbled.

The Fed kept interest rates steady at its July policy meeting but signaled that rate hikes remain possible. Three officials who dissented in favor of a 25-basis-point increase expressed concern that without an immediate rise in short-term borrowing costs, inflation would remain above the Fed's 2 percent target, where it has sat for five years.

What's Next for Prices

Market participants this week will watch US job openings data, the ADP employment report, weekly jobless claims and the nonfarm payrolls report for signals on the Fed's path. If a Hormuz deal is finalized, Brent could test the low-$80s or below as the supply risk premium fully unwinds. If talks collapse, prices would likely rebound sharply, restoring the conflict premium that had supported the market.

The last time the Strait of Hormuz faced a sustained closure threat, in 2019 after attacks on tankers, Brent spiked above $75 before retreating within weeks as supply disruptions proved limited. A full reopening now would mark a more decisive shift, removing the single largest geopolitical overhang on global oil markets and reshaping the supply outlook for the second half of the year.

This article is for informational purposes only and does not constitute investment advice.