Oil Prices Fall to Three-Month Low After US-Iran Peace Deal Spurs Supply Expectations

Oil prices fell sharply on Monday, hitting their lowest level in three months after US President Donald Trump and Iranian officials announced an initial agreement aimed at ending the war and restoring shipping through the Strait of Hormuz.

Brent crude futures dropped $3.65, or 4.2%, to $83.68 a barrel by mid-morning trading, while US West Texas Intermediate slid $4.13, or 4.9%, to $80.75. Both benchmarks touched levels not seen since March 10, extending losses after a decline of more than 3% in the previous session.

Market sentiment weakened further after reports that the United States and Iran are expected to sign a memorandum of understanding in Switzerland on Friday. The agreement is said to include provisions for reopening the Strait of Hormuz, one of the world’s most critical energy transit routes.

Pakistan, which has played a mediating role in the talks, confirmed the planned signing, while President Trump stated that the strait would reopen “toll free” and that the US naval blockade of Iranian ports would be lifted. Iran’s semi-official Mehr news agency reported that the draft deal envisions the waterway reopening within 30 days under Iranian arrangements.

Analysts said the announcement quickly removed much of the geopolitical risk premium that had been built into oil prices during months of conflict and supply disruption.

“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,” said Tim Waterer, chief market analyst at KCM Trade.

The Strait of Hormuz, through which roughly one-fifth of global oil and liquefied natural gas shipments normally pass, had been largely closed for more than three months during the conflict. The shutdown led to a significant reduction in global energy supply and pushed prices higher across international markets.

Investors are now closely watching how quickly oil producers in the Middle East can restore production and whether shipping activity will return to pre-war levels. Damage to infrastructure and lingering security concerns remain key uncertainties.

Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia, noted that while risks remain, partial recovery in supply could quickly rebalance the market. He said oil flows reaching 60 to 70 percent of pre-war levels could be enough to restore oversupply conditions seen before the conflict.

Iran’s deputy foreign minister, Kazem Gharibabadi, said broader negotiations would continue during a 60-day ceasefire period. Meanwhile, European powers including the UK, France, Germany and Italy signaled readiness to lift sanctions if progress is made on Iran’s nuclear commitments.

Market analysts say attention will now shift from political announcements to the pace of real-world supply recovery.

“While the conflict may have ended, normalization will take time,” said Priyanka Sachdeva, senior market analyst at Phillip Nova, adding that both physical infrastructure damage and prolonged high energy costs will continue to weigh on global economies even as oil flows gradually resume.