Oil Prices Slide Sharply After U.S.-Iran Preliminary Deal

Oil prices fell to their lowest levels since March on Monday after U.S. President Donald Trump and Iran’s deputy foreign minister said the two countries had reached a preliminary deal to end the war and restore tanker traffic through the Strait of Hormuz. Brent crude futures dropped $4.08, or 4.7%, to $83.25 a barrel, while U.S. West Texas Intermediate fell $4.35, or 5.1%, to $80.53. Both benchmarks hit their weakest levels since March 10, extending Friday’s decline of more than 3%.

The political shift is expected to be formalized on Friday in Switzerland, where U.S. and Iranian representatives are due to sign a memorandum of understanding. The breakthrough was disclosed by Pakistan’s prime minister, whose country mediated between the sides. Trump said the Strait of Hormuz would now be open “for free” and that the naval blockade the U.S. military imposed on Iranian ports would end.

Iran’s Mehr news agency reported that the draft agreement calls for the strait to reopen within 30 days under Iranian arrangements. Economists and market analysts said the geopolitical risk premium built into oil prices is now fading quickly as traders prepare for supply to resume. The recovery follows a difficult period in which the global market lost millions of barrels of oil and gas.

The war shut the Strait of Hormuz for more than three months, disrupting a strategic chokepoint through which one fifth of global oil and liquefied natural gas trade passes. Investors are now watching how quickly Middle Eastern producers can restore output and exports damaged by the war, and whether more ships will return to the area. According to Iranian Deputy Foreign Minister Kazem Gharibabadi, a broader and more comprehensive deal is expected during a 60-day ceasefire period.