US-Iran Deal Progress Sends Oil Down 7% as Israel Escalates Lebanon Strikes

Hopes for a US-Iran deal to reopen the Strait of Hormuz sent Brent crude futures tumbling nearly 7% on Monday, even as negotiators from both sides urged caution and Israel intensified its military campaign against Hezbollah in Lebanon.

"We have what I think is a pretty solid thing on the table in terms of their ability to open up the straits," US Secretary of State Marco Rubio said in New Delhi, while noting a deal was not yet finalized.

The market optimism, which saw Brent crude fall to $96.30 a barrel, was fueled by reports of a nearly-complete memorandum of understanding that includes a 60-day ceasefire extension and a plan for Iran to dispose of its highly-enriched uranium. However, Iran's foreign ministry spokesman, Esmaeil Baqaei, stated that while progress has been made, the signing of a deal "is not imminent."

The complex diplomacy is being tested in real-time as Israel accelerates its offensive in Lebanon, an action that runs counter to Iran's reported demand for a halt to all regional hostilities as a precondition for a deal. The outcome of these parallel, and often contradictory, events will determine whether the Strait of Hormuz, a conduit for 20% of the world's oil, reopens, or if the region plunges back into a wider conflict.

Deal Framework Takes Shape in Qatar

Under the proposed memorandum of understanding, which officials suggest is 95% complete, Iran would agree to reopen the vital Strait of Hormuz and begin de-mining operations within 30 days. The framework, reportedly mediated by Qatar where senior Iranian officials including Foreign Minister Abbas Araghchi are present, also stipulates that Iran would reaffirm it will never develop nuclear weapons and agree to a mechanism for disposing of its enriched uranium stockpile.

In return, the US would begin a phased lifting of its blockade and sanctions, with an initial $12 billion in frozen Iranian assets potentially being released, according to reports from Al Jazeera. President Trump has publicly stated that any agreement will be "a great and meaningful one, or there will be no deal," emphasizing it would be the "exact opposite" of the 2015 JCPOA accord.

Israel ‘Steps on the Gas’ in Lebanon

Complicating the diplomatic push is the escalating conflict on the Israeli-Lebanese border. Israeli Prime Minister Benjamin Netanyahu on Monday ordered the military to "escalate its offensive" and "crush" Hezbollah. Following the directive, the Israeli Defense Forces (IDF) struck more than 70 Hezbollah targets in southern Lebanon and the Bekaa Valley, issuing evacuation orders for 10 villages.

The escalation follows what Israel describes as Hezbollah's violation of an April 17 ceasefire, with over 1,000 drones and 700 rockets reportedly launched by the Iran-backed group. Iran has made the cessation of hostilities in Lebanon a condition for the broader deal, creating a direct clash between the objectives of the US-Iran negotiations and the actions of Israel, a key US ally. Israeli opposition leader Yair Lapid called the emerging deal "bad for Israel, bad for the region," criticizing the Netanyahu government's perceived lack of influence in the negotiations.

Military Maneuvers and Market Volatility

The precariousness of the situation was highlighted by US Central Command's announcement of "self-defense strikes" against Iranian missile launch sites and boats on Monday, even as peace talks continued. Iran, in turn, claimed to have shot down a "hostile drone" over the Strait of Hormuz.

This "push-pull" dynamic between diplomatic progress and military friction leaves the market on edge. While oil prices have reacted positively to the prospect of de-escalation and the reopening of a major global waterway, the risk of the entire agreement collapsing due to the actions of proxies or regional allies remains acute. The coming days will be critical in determining if the momentum toward a deal can overcome the escalating violence on the ground.

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