A potential breakthrough in US-Iran negotiations sent oil prices tumbling, as President Donald Trump announced a pause in military escorts through the Strait of Hormuz.
Crude oil prices fell sharply on Wednesday after President Donald Trump said “great progress” had been made toward a comprehensive agreement with Iran, a move that could eventually unlock 20 percent of the world's oil supply.
"We will do our best to protect our legitimate rights and interests in the negotiations," Iranian Foreign Minister Abbas Araqchi said in Beijing, according to Iranian media. "We only accept a fair and comprehensive agreement."
Brent crude futures fell 1.2 percent to $108.60 a barrel, while U.S. West Texas Intermediate (WTI) crude eased 1.2 percent to $101.06. The drop came after Trump announced a pause in "Project Freedom," the U.S. military operation to escort commercial vessels through the Strait of Hormuz, which has been virtually sealed since the conflict began on February 28.
The potential for a deal has significant implications for the global economy, which has been roiled by the energy crisis. The head of the International Monetary Fund said on Tuesday that even an immediate end to the conflict would require three to four months to deal with the consequences. Prediction markets reflected the de-escalation, with the perceived probability of a US declaration of war on Iran dropping to 5.5% from 10% in 24 hours.
The announcement from the White House injects new momentum into diplomatic efforts to end a conflict that has spread across the West Asia, killing thousands and disrupting global trade. A fragile ceasefire, now in its fourth week, has held despite ongoing, low-level military actions. The US military reported destroying several small Iranian boats, cruise missiles, and drones on Monday.
The core of the conflict revolves around Iran's nuclear program and its regional influence. Trump has stated the initial US-Israeli attacks were aimed at eliminating imminent threats from Iran, including its support for Hamas and Hezbollah. Iran maintains its right to peaceful nuclear technology under the Nuclear Non-Proliferation Treaty.
The market reaction to the potential diplomatic opening was swift and clear. Beyond the immediate drop in oil prices, prediction markets adjusted their odds on related geopolitical outcomes. The likelihood of an Israel-Iran Permanent Peace Deal by June 30, 2026, jumped to 12.5% from 8% the previous day, according to one market data provider.
"Great Progress has been made toward a Complete and Final Agreement with Representatives of Iran," Trump wrote on his Truth Social platform. The pause in military escorts, while the naval blockade on Iranian ports remains, is being interpreted by market participants as a significant step toward de-escalation.
The diplomatic maneuvering comes as Iran's foreign minister meets with Chinese officials. In Beijing, Foreign Minister Araqchi met with China's top diplomat Wang Yi, who called for a "comprehensive" ceasefire. China, a major importer of oil, has a significant interest in the stability of the region and the free flow of energy supplies.
While Trump has previously commented that China did not challenge the US naval blockade in Hormuz, Beijing's diplomatic engagement with Iran underscores the global stakes of the conflict.
This article is for informational purposes only and does not constitute investment advice.
