Crude falls 5% as Tehran allows “non-hostile” ships passage, easing worst-case supply fears.
MARKET INSIDER – Oil markets pulled back sharply after signs of tentative de-escalation in the Gulf, as Iran indicated it would allow “non-hostile” vessels to pass through the Strait of Hormuz, easing immediate fears of a full-scale supply shutdown. The move comes as Donald Trump confirmed that Washington and Tehran are “in negotiations,” despite Iran continuing to deny direct talks.
The market reaction was swift. Brent crude fell roughly 5% to around $99 per barrel, while West Texas Intermediate dropped to about $87, reflecting a rapid repricing of geopolitical risk after days of elevated tension. Traders moved to unwind worst-case scenarios that had priced in a prolonged disruption to one of the world’s most critical energy corridors.
At the heart of the shift is Iran’s evolving control over Hormuz. Tehran’s mission to the United Nations signaled that ships from countries deemed “non-hostile”—including some from Asia—may continue to transit the waterway if they coordinate with Iranian authorities. This effectively introduces a conditional reopening of a route that typically carries around 20% of global oil and LNG supply, while reinforcing Iran’s strategic leverage over global energy flows.
The price decline also reflects renewed, if uncertain, diplomatic momentum. Reports suggest the U.S. has presented a multi-point proposal to end the conflict, potentially delivered through intermediaries such as Pakistan, though details remain unclear and Israel’s position on any agreement is still uncertain.
Despite the pullback, volatility remains elevated. Iranian officials have warned that oil prices are unlikely to stabilize until broader regional security is assured, while analysts emphasize that current market moves are driven less by supply fundamentals and more by shifting probabilities of extreme scenarios. According to Goldman Sachs, crude is trading with a significant geopolitical risk premium, reflecting uncertainty over how long disruptions could last.
The scale of the shock is already historic. Disruptions tied to the conflict represent one of the largest supply shocks in decades relative to global demand, underscoring the fragility of energy markets in times of geopolitical crisis.
For investors, the key dynamic is no longer just supply and demand—it is probability. If shipping flows normalize in the coming weeks, as some base-case scenarios suggest, oil could stabilize or decline further. But any breakdown in negotiations or renewed escalation could quickly reverse the trend, pushing prices back into triple-digit territory.
In today’s market, oil is not just reacting to events—it is reacting to expectations of what might happen next.
