Oil drops as Trump pauses planned Iran strikes

Highlights

Brent crude fell 2% to $88.6 a barrel after Trump called off planned Iran strikes.
WTI declined 1.8% to $86.1 as traders reduced the immediate war-risk premium.
Iran said Hormuz was closed, while the U.S. said commercial traffic continued.

Brent crude fell to $88.6 a barrel, while West Texas Intermediate crude dropped to $86.1 a barrel. The decline came after Trump said talks with Iran had advanced enough to delay further U.S. military action, Reuters reports. Broader hopes that an agreement could eventually restore regular shipping through the Strait of Hormuz also helped push prices lower.

Diplomacy pulls down the risk premium

Trump had earlier warned that Iran could be hit hard if negotiations dragged on, but later stepped back from the planned strikes after saying a peace agreement could be reached as soon as this weekend. Iran has not confirmed that a final deal is ready, and its official media reported that Tehran had not approved any agreement text.

The market reaction was sharp because oil prices had been supported for months by fears that the Iran war would keep Gulf exports restricted. When traders saw a lower chance of immediate U.S. escalation, Brent moved back below $90, though it remains well above levels seen before the Hormuz crisis became the dominant market driver.

Hormuz remains the main threat

The biggest unresolved issue is the Strait of Hormuz, the narrow waterway that normally carries about one-fifth of global oil and liquefied natural gas shipments. Iran said Thursday that the strait was closed and warned that ships trying to pass without coordination could be targeted. State media reported Friday that Iranian forces had stopped a tanker from moving through the area.

The U.S. military has disputed the closure claim, saying commercial vessels continue to transit the waterway. That difference matters for prices because even a partial reopening could reduce shipping delays and insurance costs, while a renewed blockade could quickly restore the risk premium. Analysts remain cautious because a ceasefire or shipping deal could be fragile, especially if nuclear talks fail to progress.

Lower prices do not end the supply problem

The fall in crude prices offers some relief for consumers, airlines, and import-dependent economies, but it does not remove the market’s structural risk. Analysts have warned that if oil flows do not recover before late July, lower inventories and seasonally stronger demand could push prices sharply higher again.

The demand side is also changing. OPEC lowered its 2026 world oil demand growth forecast to 970,000 barrels per day from 1.17 million barrels per day, its second consecutive downward revision. At the same time, the producer group raised its 2027 demand growth estimate to 1.73 million barrels per day, suggesting that any supply recovery through Hormuz could collide with stronger consumption later.

We also reported Hormuz closure pushes Iraq and UAE to expand oil pipelines.

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