Global oil prices fell to their lowest levels since March on Monday after the United States and Iran announced a preliminary agreement aimed at ending their conflict and restoring shipping through the Strait of Hormuz.
Brent crude futures dropped $4.08, or 4.7 per cent, to $83.25 per barrel, while US West Texas Intermediate (WTI) crude fell $4.35, or 5.1 per cent, to $80.53 per barrel. Both benchmarks reached their lowest levels since March 10, extending losses recorded at the end of last week.
The decline followed announcements by US President Donald Trump and Iran’s Deputy Foreign Minister Kazem Gharibabadi that the two countries had agreed on a framework to end hostilities. Prime Minister Shehbaz Sharif said the memorandum of understanding would be formally signed in Switzerland on Friday.
Trump stated that the Strait of Hormuz would reopen on a “toll free” basis and that the US naval blockade of Iranian ports would be lifted. Iran’s semi-official Mehr news agency reported that the draft agreement calls for the strategic waterway to be reopened within 30 days under Iranian supervision.
Market analysts said traders quickly removed the geopolitical risk premium that had pushed oil prices higher during the conflict. Tim Waterer, Chief Market Analyst at KCM Trade, said, “The geopolitical risk premium that had been built into crude is now being unwound quite aggressively as traders price in the prospect of restored oil flows.”
The Strait of Hormuz is one of the world’s most important energy routes, handling around one-fifth of global oil and liquefied natural gas supplies. Its closure during the conflict disrupted millions of barrels of daily oil and gas shipments, contributing to higher energy costs worldwide.
Despite the optimism, investors remain cautious about how quickly oil production and exports in the region can recover from war-related disruptions. Analysts are also monitoring whether shipping activity will return to normal levels in the coming months.
Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia, noted that oil markets could return to surplus conditions if flows through the Strait of Hormuz recover to 60–70 per cent of their pre-war levels. He said, “While these uncertainties suggest upside risks to our forecast for Brent oil futures to reach $80/bbl by the end of the year, it’s worth noting that oil flows through the Strait of Hormuz just need to reach 60-70pc of pre-war levels to return oil markets to pre-war oversupply expectations.”
Meanwhile, Gharibabadi said negotiations on a broader agreement would continue during a 60-day ceasefire period. In a further sign of diplomatic progress, the E4 nations — the United Kingdom, France, Germany and Italy — announced their willingness to lift sanctions on Iran if it takes verifiable steps regarding its nuclear programme.
Analysts cautioned that while the conflict may be winding down, the economic and infrastructure damage caused by months of disruption will take time to repair. Priyanka Sachdeva, Senior Market Analyst at Phillip Nova, said, “Beyond the immediate price reaction, attention will now shift toward the pace of actual supply normalisation and compliance with the agreement.”
She added, “While the conflict may have come to an end and oil flows through the Strait of Hormuz may gradually return to normal, the damage already done cannot be reversed overnight.”
