Iran's Pezeshkian Rules Out Escalation as Oil Falls 5% on Hormuz Hopes

Iranian President Masoud Pezeshkian said Iran has no intention to escalate tensions in West Asia but will not compromise on territorial integrity, as US crude fell 5 percent to $80.79 a barrel on renewed hopes for a diplomatic resolution.

"There's a deal on (the Strait of) Hormuz, and then there will be a deal on the nuclear, or you might call it the denuclearization of Iran," US President Donald Trump told reporters Sunday, hours after he cancelled planned strikes on Iranian targets at the urging of Gulf allies including Saudi Arabia, Qatar and the UAE.

Brent crude fell 5 percent to $83.87 per barrel, extending a volatile stretch that saw prices push past $100 multiple times during the spring after the US and Israel launched attacks on Iran in late February. The Strait of Hormuz handles roughly a fifth of the world's energy flows, and tankers carrying oil and other products have been trapped in the Persian Gulf during the five-month conflict. Iranian Foreign Minister Abbas Araghchi said negotiations with Oman over managing the strategic waterway are "in their final stages," according to state news agency IRNA.

The statement from Pezeshkian, posted on social media platform X on Sunday, indicates Tehran's willingness to pursue a diplomatic track even as it maintains a hard line on sovereignty. Iran and the US signed a memorandum of understanding on June 18 to end the war on all fronts, but the framework collapsed after conflicting claims over its terms. Trump said negotiations with Iran will begin Monday afternoon, with Gulf leaders pressing Washington to hold off on military action.

Diplomatic Window Opens as Hormuz Talks Near Completion

Iranian Foreign Minister Abbas Araghchi held separate phone calls with Saudi Foreign Minister Prince Faisal bin Farhan and Pakistan's Army Chief Field Marshal Syed Asim Munir on Sunday, discussing regional cooperation and political solutions. Tehran has also been in talks with Oman over a revised shipping lane through the strait, with Iranian Foreign Ministry spokesperson Esmaeil Baqaei telling state television that an understanding was imminent.

However, Iran has denied reports that it agreed to reopen the strait. "There is no agreement on reopening the Strait of Hormuz," Fars News cited a source close to Tehran's nuclear negotiating team as saying. The source added that vessels could pass only through a designated route with the Islamic Revolutionary Guard Corps Navy's permission, and that the strait would remain closed as long as US "hostile actions" continued. The US naval blockade, in effect since July 14, has redirected 35 commercial vessels, disabled two and boarded two others, according to US Central Command.

Oil Risk Premium Compresses as War Fears Ease

The 5 percent drop in crude prices Sunday night reflects the market's relief that a full-scale US military campaign against Iran has been deferred. Oil prices had swung widely since late February, with WTI and Brent both breaching $100 during the spring as the conflict disrupted shipping through the strait. The price surge seeped into gasoline, jet fuel and diesel costs, with some countries facing fuel rationing and sporadic closures of schools and government offices.

The last time oil prices fell sharply on Iran diplomatic news was in June, when the US-Iran memorandum was first signed, though the subsequent collapse of that framework sent prices back above $90. The current risk premium embedded in crude prices will depend on whether the 60-day negotiation window outlined in the memorandum can be revived.

Qatari Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani called for implementing the memorandum, including provisions guaranteeing freedom of navigation through the strait, in separate phone calls with Saudi and Jordanian foreign ministers on Sunday. Meanwhile, the US State Department has advised American citizens in the Middle East to consider departing or be prepared to leave if security conditions worsen.

If the talks succeed, tankers trapped in the Persian Gulf could resume normal passage, potentially adding significant supply to global markets and further pressuring prices. If they fail, the US has said it is prepared for a prolonged military campaign, with Trump warning that Washington would strike Iran "very hard" until "they can't take it anymore."

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