On Saturday, U.S. President Donald Trump announced that Washington and Tehran had "largely negotiated" a memorandum of understanding on a peace deal aimed at reopening the Strait of Hormuz, a critical route for global oil shipments.
Brent crude futures fell by $4.71, or 4.55%, to $98.83 a barrel, while U.S. West Texas Intermediate crude declined by $4.57, or 4.73%, to $92.03 a barrel. This drop comes after both benchmarks hit their lowest levels since May 7. Last week, U.S. crude prices fell over 8%, and Brent lost more than 5% following Trump's decision to cancel imminent airstrikes against Iran to allow for more diplomatic efforts.
Despite the progress, negotiations remain complex, with several challenging issues still dividing the two sides. President Trump indicated that the U.S. is not rushing to finalize an agreement, emphasizing that negotiations are proceeding in an orderly and constructive manner.
“The negotiations are proceeding in an orderly and constructive manner, and I have informed my representatives not to rush into a deal when that time is on our side.”
Donald Trump, U.S. President
Iran has maintained a blockade in the Strait of Hormuz since early March, requiring ships to obtain clearance before passage. This blockade followed U.S. and Israeli strikes that resulted in the death of Iran’s Supreme Leader Ayatollah Ali Khamenei and other senior leaders. The strait, a vital oil chokepoint, previously handled nearly 20% of global oil supply.
Analysts caution that even if a deal is reached, it could take months for oil shipments through the strait to normalize and for damaged infrastructure to be repaired. Saudi Aramco CEO Amin Nasser warned that disruptions could delay market stability until 2027, with nearly 100 million barrels of oil supply per week potentially impacted.
Background
The Strait of Hormuz is one of the world's most critical oil chokepoints, with nearly 20% of global oil supply passing through it before the conflict. The blockade has led to significant disruptions in oil exports from the Middle East.
Looking ahead, the oil market faces uncertainty as it races against time to stabilize. Morgan Stanley highlighted that factors preventing further crude price increases could weaken if the Strait of Hormuz remains closed through June, potentially tightening global supplies again.
