Oil prices drop sharply as Trump cancels Iran strikes, revives peace hopes
Oil prices fell sharply yesterday after US President Donald Trump cancelled planned strikes against Iran and announced that peace talks would resume between the two nations.
Brent crude, the international benchmark, dropped nearly 7 per cent to trade around $84.14 per barrel, having fallen as low as $81.55 earlier in the session. The decline reversed a surge that had pushed prices above $100 per barrel last month when hostilities between Washington and Tehran threatened to choke off global fuel supplies.
Trump announced on social media over the weekend that he had called off what he described as the 'biggest attack since World War II,' expressing hope that a peace agreement could be reached 'rapidly' with Iran. Any deal would address the country's nuclear programme and ensure the full reopening of the Strait of Hormuz, the vital shipping channel through which nearly 15 million barrels of crude oil pass daily—representing roughly 34 per cent of global oil trade.
Context of the conflict
The current crisis stems from escalating tensions that erupted on 28 February, when US and Israeli forces launched nearly 900 strikes against Iranian military infrastructure, nuclear facilities and leadership targets. The conflict sparked a sharp deterioration in relations and led to repeated attacks on shipping in the strategically critical Strait of Hormuz.
During the height of hostilities in early March, tanker traffic through the strait plummeted by approximately 70 per cent, with over 150 vessels anchoring outside the waterway to avoid the risks. At the worst point, traffic collapsed to as few as two tankers per day, compared with the normal flow of 120 to 140 vessels daily.
The disruption sent Brent crude soaring to a peak of $117.29 per barrel in April—an increase of roughly $53 from the previous year's levels. Prices had already begun retreating in recent months, averaging $85 per barrel in June, down $22 from May and $32 from the April peak.
Recent diplomatic efforts
The peace talks Trump referenced are part of a negotiating framework established on 17 June, when Washington and Tehran signed a 14-point memorandum of understanding. That agreement set out a 60-day period for discussions covering freedom of navigation through the Strait of Hormuz, Iran's nuclear and missile programmes, and economic sanctions.
Despite those diplomatic efforts, tensions remained high. On 7 July, three tankers were struck by projectiles in the strait in the most attacks recorded in a single day since late April, according to the UN International Maritime Organization. The United States responded by revoking a licence that had authorised the sale of Iranian oil.
Shipping data from early July showed some recovery, with approximately 108 verified vessel crossings between 3 and 5 July, though still well below pre-conflict levels.
Economic implications
The fall in oil prices is expected to ease upward pressure on inflation globally, potentially reducing the need for further interest rate rises by central banks. Oil price increases create cost-push inflation by raising expenses across transportation, manufacturing and logistics sectors. Persistently high prices can also shift consumer expectations, embedding inflation more deeply into the economy.
Central banks typically respond to rising inflation by increasing interest rates, though oil-driven price pressures stemming from supply-side disruptions are notoriously difficult to address through monetary policy alone.
The decline in energy costs will provide relief to households facing elevated bills and to motorists contending with high petrol prices. Asian economies, which receive approximately 84 per cent of the crude oil and liquefied natural gas transiting the Strait of Hormuz, stand to benefit particularly from renewed stability in the region. China, India, Japan and South Korea alone account for roughly 69 per cent of all crude oil flows through the waterway.
According to forecasts from the US Energy Information Administration, Brent crude is projected to average $74 per barrel in the third quarter of 2026, suggesting the market expects the diplomatic breakthrough to hold and supply conditions to continue normalising.