By: Economy Middle East

Oil prices declined on Tuesday as hopes for a temporary ceasefire between the United States and Iran offset renewed military strikes and threats to disrupt Saudi Arabian shipping.

Brent crude futures fell 0.78 percent to $88.52 per barrel by 8:30 UAE time. U.S. West Texas Intermediate crude declined 0.39 percent to $82.16 per barrel.

The more actively traded WTI contract for September delivery slipped 41 cents, or 0.5 percent, to $82.07 per barrel. Both benchmarks remained below the more than one-month highs reached during the previous session.

The market was balancing tentative diplomatic progress against continued military escalation. A senior Iranian official told Reuters that Tehran had received a proposal from mediators for a 10-day ceasefire.

Ceasefire hopes emerge

The proposal is intended to revive the interim agreement signed on June 17 and support negotiations toward a lasting settlement of the war, which began on February 28 with U.S.-Israeli attacks on Iran.

ING analysts said reports that mediators were proposing a 10-day ceasefire had created some hope of de-escalation and could place the memorandum of understanding underpinning the June agreement back on track.

However, the analysts cautioned that restoring the agreement would be difficult because major differences remained between Washington and Tehran. U.S. President Donald Trump had also warned of retaliation after several American troops were killed.

The diplomatic effort followed another night of U.S. strikes against Iranian cities and attacks by Iran’s Revolutionary Guards on U.S. military assets across the region. U.S. Central Command later said it had begun another round of strikes on Iran.

The continuing attacks maintained a substantial geopolitical premium in oil prices, despite the prospect of negotiations temporarily limiting the market’s advance.

A tanker travelling through the Strait of Hormuz reported that it had been struck by an unidentified projectile, according to the United Kingdom Maritime Trade Operations agency. The vessel’s crew abandoned the ship and boarded a lifeboat.

Crossings through the strait declined further as shipping companies exercised greater caution following the renewed exchange of attacks.

Houthi threats escalate

Yemen’s Iran-aligned Houthi movement said on Monday that it would impose a naval blockade on Saudi Arabia. The threat raised the possibility of a new front in the conflict and increased concerns about energy supplies and commercial trade beyond the Gulf.

Tim Waterer, chief market analyst at KCM Trade, said the threat was significant because it increased the risk of disruption involving another major oil-exporting country.

IG market analyst Tony Sycamore said oil still had the potential to move higher after its recent advance. However, he said discussion of de-escalation and peace negotiations was limiting further gains in the short term, although it remained uncertain whether the diplomatic initiative would produce results.

Developments in U.S. inventories could also influence prices. A preliminary Reuters poll indicated that American crude oil and gasoline stockpiles were expected to have declined during the previous week, while inventories of distillate fuels were likely to have increased.

Falling crude and gasoline stocks can support prices by indicating stronger consumption or tighter supplies. Rising distillate inventories, however, may signal weaker demand for fuels such as diesel and heating oil.

Critical shipping routes

The latest developments carry global consequences because the Strait of Hormuz is one of the world’s most important energy corridors. The waterway connects the Persian Gulf with the Gulf of Oman and the Arabian Sea, providing the main maritime export route for several leading oil and gas producers.

According to the U.S. Energy Information Administration, oil flows through the strait averaged 20.9 million barrels per day during the first half of 2025. That volume was equivalent to about 20 percent of global petroleum liquids consumption and one-quarter of internationally traded maritime oil.

Around 89 percent of the crude oil and condensate passing through Hormuz went to Asian markets. China, India, Japan and South Korea collectively received 74 percent of those shipments, demonstrating why interruptions can quickly affect refining costs and energy security across Asia.

The same route handled approximately 11.4 billion cubic feet per day of liquefied natural gas during the period, representing more than 20 percent of worldwide LNG trade. Most of those volumes originated in Qatar.

Alternative pipelines offer only partial protection. Saudi Aramco’s East-West pipeline and the UAE’s Abu Dhabi crude oil pipeline can jointly provide approximately 4.7 million barrels per day of capacity that bypasses Hormuz, according to the EIA. That remains considerably below the normal volume moving through the strait.

Supply alternatives narrow

Saudi Arabia can direct crude through its East-West pipeline to Yanbu on the Red Sea, reducing its dependence on Persian Gulf terminals. The EIA’s Saudi Arabia analysis places the pipeline’s normal capacity at 5 million barrels per day and says it can temporarily expand to 7 million barrels per day.

However, a Houthi campaign against Saudi shipping could place both Gulf and Red Sea export options under pressure simultaneously. Such a development would increase insurance premiums, lengthen voyages and potentially force tankers to use more expensive routes.

Vessels avoiding the Red Sea and Bab el-Mandeb can sail around the Cape of Good Hope. The EIA estimates that this diversion can add approximately 15 days to a voyage between the Arabian Sea and Europe, increasing fuel, chartering and operational costs.

The sensitivity of prices to the conflict was demonstrated earlier in 2026. The International Energy Agency said the near halt in tanker traffic through Hormuz disrupted close to 20 million barrels per day of crude oil and petroleum-product exports in March. It estimated that regional producers curtailed at least 8 million barrels per day of crude production, alongside another 2 million barrels per day of condensates and natural gas liquids.

The mediation proposal has therefore offered the market a measure of relief, but oil prices remain exposed to military developments, tanker movements and any practical progress toward restoring the June agreement.