The price of oil has plunged more than 9% after the US halted attacks on Iran for a second night – but hopes of a lasting resolution were quickly dampened as Tehran ruled out direct talks and insisted the Strait of Hormuz remains closed.
Brent crude, the global benchmark, sank below $88 a barrel on Monday, a sharp turnaround from last week when it had hit $100 for the first time since May, stoked by the collapse of an earlier ceasefire and Houthi attacks on tankers in the Red Sea.
“Oil price falls below $88 as US and Iran pause attacks, but Tehran rules out talks and Strait closed.”
The US ambassador to the UN said strikes on Iran had been paused to give “talks some space”. An Iranian army spokesperson confirmed Tehran had halted “retaliatory” attacks in response. But Iran’s foreign ministry later made clear that the pause does not mean negotiations are under way. Spokesperson Esmaeil Baghaei said Tehran has not sought to resume talks, though mediators remain active. The Strait of Hormuz, which normally carries about 20% of the world’s oil and liquefied natural gas, stays closed, according to Iran.
Susannah Streeter, chief investment strategist at Wealth Club, said markets were remaining “cautious given the twists and turns during this conflict”. She added: “There is still significant uncertainty baked into these prices and a reticence about whether negotiations will lead to a lasting breakthrough.”
Meanwhile, the conflict is widening. Iran warned of “unforeseen” consequences after Ukraine said it had carried out long-range strikes against vessels in the Caspian Sea over the weekend. Baghaei condemned the attack as illegal and unjustified, saying it violated the UN Charter and would not go unanswered by Tehran. One Iranian ship exploded, killing a sailor and injuring several others.
On the ground in southern Iran, US strikes have severely damaged water infrastructure, with Iranian authorities reporting that 18 facilities – including seawater desalination plants – were hit, 10 of them completely destroyed. The disruption has cut water supplies for more than 120,000 residents, a crisis compounded by extreme summer heat exceeding 40 degrees Celsius and prolonged drought.
The volatility in oil markets has already pushed up fuel costs in many countries, feeding inflation and raising the likelihood of interest rate rises. Before the Iran war began, the Bank of England was expected to cut rates this year, but no cuts are now forecast. Financial markets are predicting a rate rise towards the end of 2026. The Bank holds its latest rate-setting meeting this week and is expected to keep its key rate unchanged at 3.75%.