Oil prices drop sharply as US-Iran peace talks advance amid Strait of Hormuz relief

Oil prices fell over $1 on Tuesday after earlier gains, as investors anticipated peace talks between the US and Iran this week. These discussions could lead to increased oil supply from the Middle East, easing recent disruptions.

Key Highlights

• Oil prices fell over $1 as US-Iran peace talks are expected this week
• Strait of Hormuz disruptions have reduced oil demand by about 3 percent so far
• Citi projects oil prices could reach $110 a barrel if disruptions persist another month
• Kuwait declared force majeure on oil shipments due to the ongoing blockade

Current Oil Price Movements

Brent crude declined by $1.04, or 1.1 percent, to $94.44 a barrel at 0600 GMT. US West Texas Intermediate (WTI) for May dropped $1.66, or 1.9 percent, to $87.95. The May WTI contract expires on Tuesday, while the more-active June contract fell $1.24, or 1.4 percent, to $86.18.

On Monday, both benchmarks surged. Brent rose 5.6 percent, and WTI climbed 6.9 percent after Iran again closed the Strait of Hormuz, a key oil transport route. The US also seized an Iranian cargo ship as part of its ongoing blockade of Iranian ports.

Impact of Strait of Hormuz Disruptions

The Strait of Hormuz handles about one-fifth of the global oil supply. Shipping activity through the strait remained limited on Monday. Kuwait declared force majeure on oil shipments due to the blockade, according to Bloomberg News.

Societe Generale analysts noted that the higher prices from the strait's closure have reduced oil demand by about 3 percent so far. The risk of larger losses increases the longer the disruption continues. The bank expects full supply normalization only by late 2026.

Peace Talks and Market Outlook

Investors are focusing on the likelihood that talks this week will extend the current ceasefire or lead to a final agreement. However, the chance of further conflict and continued disruptions to oil flows remains.

ING analysts stated that while optimism surrounds the US-Iran talks, markets may be underestimating the ongoing supply disruption. They warned that optimism could be clouding the reality of the supply shock.

A senior Iranian official told Reuters that Iran is considering joining peace talks in Pakistan, following Islamabad's efforts to end the US blockade. The blockade has hindered Tehran's participation in peace efforts, with the current two-week ceasefire set to expire this week.

Citi analysts said they expect a memorandum of understanding to be signed or the ceasefire extended this week, possibly evolving into a broader agreement. However, they remain prepared for a more prolonged disruption if negotiations fail.

The Iranian official emphasized that no decision has been made on attending the talks. Iranian Foreign Minister Abbas Araqchi cited continued US ceasefire violations as a barrier to further negotiations. Iran's Speaker of Parliament, Mohammad Baqer Qalibaf, reiterated that Tehran would not negotiate under threats.

Potential Market Impact

If disruptions to the strait persist for another month, total losses could reach about 1.3 billion barrels. Citi projects oil prices could approach $110 a barrel in the second quarter of 2026 if the situation does not improve.

Also Read: India’s Russian crude imports double in March amid West Asia conflict

CarBike 360 Says

As US-Iran peace talks gain momentum, the anticipated easing of Strait of Hormuz disruptions has triggered a sharp oil price drop, offering relief to global economies strained by recent volatility. While uncertainties linger, this de-escalation underscores diplomacy's power to stabilize energy markets, potentially paving the way for sustained lower prices and renewed investor confidence in 2026.