By: Economy Middle East

Oil prices fell more than 4 percent on Monday after the United States and Iran paused military strikes over the weekend, strengthening expectations that diplomacy could reduce immediate threats to Middle East crude supplies and support a recovery in shipping through the Strait of Hormuz.

At the time of writing, Brent crude futures were down 4.61 percent, at $87.46 per barrel, while U.S. West Texas Intermediate crude was $4.66 lower, or 5.22 percent, at $84.65. Investing.com noted that its Brent quotation rolled to the October 2026 contract on July 26, an important distinction when comparing the live figure with earlier prices based on a different contract month. 

Both benchmarks were trading near their lowest levels in almost a week after rising for three consecutive weeks. Brent had recently reached $100 per barrel as two weeks of conflict restricted shipments through Hormuz and spread into the Red Sea, disrupting routes used to carry Saudi crude through Bab el-Mandeb toward Asian markets. 

U.S. Ambassador to the United Nations Mike Waltz said President Donald Trump had paused American attacks to give diplomatic efforts more time. 

ING analysts said the sharp decline reflected the first meaningful signs of potential de-escalation after Washington and Tehran refrained from further military action. They added that the price reaction showed how strongly the oil market had been waiting for encouraging news. 

The selloff erased part of the previous week’s risk-driven gains, although prices remained elevated as threats to regional energy infrastructure and major shipping corridors remained unresolved.

Shipping risks remain

The pause has not yet produced a broad recovery in tanker traffic. Kpler data showed that fewer than 10 commodity vessels moved through the Strait of Hormuz each day during the weekend, indicating that shipowners remained cautious despite the reduction in hostilities.

MST Marquee analyst Saul Kavonic said any rebound in flows was likely to be gradual and incomplete because shipping companies would need greater confidence in vessel safety before sending more empty tankers into the waterway.

Traffic through Bab el-Mandeb also declined on Sunday after Yemen’s Houthis attacked Saudi oil facilities along the Red Sea coast. A third Chinese supertanker nevertheless exited through the strait, showing that some crude movements continued despite the heightened security threat.

Analysts said oil prices could remain supported if physical supplies continued to face disruption from security risks across the Middle East and from the Russia-Ukraine war. The pause between Washington and Tehran reduced the immediate geopolitical premium, but it did not remove the possibility of renewed attacks or further shipping delays.

UOB analysts said the conflict’s expansion into the Red Sea, combined with Ukrainian drone attacks on Russian ships and refineries, could sustain pressure on supplies. They warned that a prolonged disruption would probably keep crude prices elevated and create additional upside risks for global inflation.

Ukraine said it struck several Russian oil facilities over the weekend, adding another source of uncertainty for traders already monitoring tanker movements, export routes and infrastructure risks across multiple producing regions.

Earlier diplomatic signals

The weekend pause followed 13 nights of intensifying U.S. strikes, with no American attacks reported on Saturday or Sunday. It also followed a conditional signal from Tehran that it would stop its own attacks for as long as the United States also held fire. A senior Iranian official told Reuters that Iran’s position remained based on responding attack for attack, while another Iranian source expressed greater skepticism than optimism and viewed the lull as potentially tactical rather than permanent. 

The latest pause also came after a June 18 memorandum of understanding between Washington and Tehran that sought to end the conflict and reopen the Strait of Hormuz. The U.S. Energy Information Administration said the agreement allowed it to raise its global production forecast as flows began recovering, although later fighting again disrupted the diplomatic track.

The International Energy Agency cautioned in June that a full recovery would not be immediate because shipping lanes would need to be cleared and regional supply chains would require time to normalize. That warning remains relevant as vessel counts stay depressed even during the current pause. 

Supply stakes persist

The scale of the disruption explains why small changes in tanker traffic can produce large moves in crude prices. The IEA estimated in June that flows through Hormuz had fallen from about 20 million barrels per day before the conflict to an average of 2.7 million barrels per day during March, April and May, with cumulative Middle East supply losses exceeding 1.3 billion barrels. 

Bab el-Mandeb is another critical route. EIA data showed that around 5.4 million barrels per day of crude, condensate and petroleum products moved through the strait in the first quarter of 2026, highlighting the potential market impact of attacks or blockades along the Red Sea corridor. 

Demand forecasts add another layer of uncertainty. The EIA expects global oil consumption to decline by an average of 1.2 million barrels per day in 2026, largely because Asian demand has been affected by the Hormuz disruption. OPEC, however, forecasts global demand growth of about 0.8 million barrels per day this year. 

The contrast means geopolitical developments may remain the dominant short-term price driver even as forecasters disagree over the underlying demand picture. A durable diplomatic settlement and sustained shipping recovery could remove more of the war premium, while renewed attacks on vessels or energy infrastructure could quickly reverse the current selloff.