Oil slides 0.7% as U.S.-Iran talks raise Strait of Hormuz hopes

Oil prices fell in early Asian trade as markets weighed the prospects of a U.S.-Iran deal to reopen the Strait of Hormuz despite renewed hostilities.

Brent crude slid 0.3% to $99.27 a barrel and WTI fell 0.7% to $93.24 in early Asian trading Tuesday as investors assessed the likelihood of a diplomatic resolution to reopen the Strait of Hormuz.

"Iran has signaled the latest U.S. strikes won't derail the talks, but the window for a deal is narrowing," said Kieran Tompkins, senior commodities economist at Capital Economics. "Options data suggests investors see flows via the strait resuming as the most likely outcome, though they are implicitly placing a 37% chance of oil above $100 a barrel in three months."

The mixed signals come after U.S. Central Command launched what it called "self-defense strikes" Monday against missile launch sites and boats allegedly laying mines in the Strait of Hormuz — the first U.S. attacks since a ceasefire was declared seven weeks ago. Iran condemned the strikes as a ceasefire violation and claimed it shot down a U.S. drone in retaliation. Secretary of State Marco Rubio said negotiations could take several more days, while President Donald Trump described the talks as "proceeding nicely" on Truth Social.

The stakes are enormous for global energy markets. The Strait of Hormuz handles about 20% of the world's oil and liquefied natural gas shipments, and its effective closure since late February has stranded hundreds of vessels, spiking fuel and fertilizer prices worldwide. If a deal is reached, oil could drop sharply as supply resumes; if talks collapse, Capital Economics' options-implied 37% probability of crude above $100 a barrel could become reality.

Diplomatic Chessboard

Under the emerging framework, Iran would agree to give up its stockpile of 440.9 kilograms of uranium enriched to 60% purity — a short technical step from weapons-grade — while the strait would gradually reopen in parallel with the U.S. lifting its blockade of Iranian ports. A 60-day negotiating period would cover sanctions relief and the release of billions in frozen Iranian funds, with Russia offering to take custody of the enriched material.

But several issues remain unresolved, including whether Iran can continue enriching uranium and to what level, and the fate of its missile program. Iran's Foreign Ministry spokesman Esmail Baghaei said "the focus of the negotiations is on ending the war, and at this stage we are not discussing the details of the nuclear issue."

Regional Spillover

The diplomatic uncertainty is compounded by escalating Israeli operations against Hezbollah in Lebanon. Prime Minister Benjamin Netanyahu said Israel would not be bound by any nuclear pact and vowed to "step on the pedal even more" against the Iran-backed militant group. Israeli forces struck more than 100 Hezbollah sites across southern and eastern Lebanon Tuesday, while extending ground incursions deeper into Lebanese territory.

The last time oil markets faced a comparable supply disruption — during the 2019 attacks on Saudi Aramco's Abqaiq and Khurais facilities — Brent spiked 15% in a single day before retreating within weeks as supply normalized. The current situation carries greater complexity given the multi-front nature of the conflict and the involvement of Iran's proxies across Yemen, Lebanon, and Iraq.

For now, the options market reflects deep uncertainty. While the base case points to a reopening of the strait and lower prices, the 37% tail risk of oil above $100 represents the highest geopolitical risk premium since the Russia-Ukraine conflict pushed Brent above $130 in 2022.

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