Oil Prices Slip as Hopes of Renewed US-Iran Talks Ease Market Fears

Oil prices edged lower in early Asian trading on Tuesday, as signs of possible renewed dialogue between the United States and Iran helped calm concerns over supply disruptions linked to the blockade of the Strait of Hormuz.

Brent crude futures fell by $1.86, or 1.87 per cent, to $97.50 per barrel, while US West Texas Intermediate dropped $2.25, or 2.27 per cent, to $96.83 in early trading. The decline followed gains in the previous session, when both benchmarks rose sharply after the US military confirmed it had begun enforcing a blockade on Iranian ports.

The blockade, announced by Donald Trump, extends beyond the Strait of Hormuz to cover parts of the Gulf of Oman and the Arabian Sea. Ship-tracking data indicated immediate disruption, with at least two vessels turning back as the restrictions took effect.

Despite the breakdown of weekend talks in Islamabad aimed at ending the conflict, market sentiment shifted after reports suggested diplomatic channels remain open. Analysts said the possibility of further negotiations has helped ease fears of a prolonged supply shock.

“Even after the failed talks, the prospect of renewed engagement has taken some pressure off prices,” said Tim Waterer, chief market analyst at KCM Trade. Sources familiar with the discussions indicated that communication between Washington and Tehran has not been completely severed.

Efforts to defuse tensions are also being supported by regional actors. Shehbaz Sharif confirmed that Pakistan continues to push for de-escalation following its role in hosting the recent negotiations. Trump also signalled optimism, saying Iran “wants to make a deal.”

Still, supply concerns remain significant. Analysts at ANZ estimate that around 10 million barrels per day of crude have already been effectively removed from global markets. A prolonged blockade could cut an additional 3 to 4 million barrels per day, tightening supply further.

“The market no longer requires a worst-case scenario to sustain elevated prices,” ANZ said in a note, pointing to already tight supply-demand conditions.

International reactions have been cautious. Several NATO allies, including Britain and France, have opted not to participate in the blockade, instead urging the reopening of the vital shipping route. Meanwhile, global institutions such as the International Monetary Fund and the International Energy Agency have called on countries to avoid hoarding energy supplies or restricting exports.

Fatih Birol said the agency remains ready to act if conditions worsen, though no immediate release of strategic reserves is planned.

At the same time, the Organization of the Petroleum Exporting Countries has revised down its global demand forecast for the second quarter, reflecting growing uncertainty in the market.

While prices have eased for now, analysts warn that further volatility is likely, with the trajectory of the conflict and the fate of diplomatic efforts expected to shape energy markets in the weeks ahead.