The price of oil has fallen sharply after the US halted attacks on Iran for a second consecutive night, but hopes of a lasting de-escalation remain fragile as Tehran rules out direct talks and drone strikes continue across the region.
Brent crude sank more than 9% to $87.59 a barrel on Monday, a dramatic reversal from last week when it hit $100 a barrel for the first time since May. The drop came after the US ambassador to the UN said the pause was intended to give “talks some space”. An Iranian army spokesperson confirmed on Sunday that Tehran had halted “retaliatory” attacks in response.
“Oil price drops 9% as US and Iran pause attacks, but tensions remain high with no direct talks.”
But Iran’s foreign ministry said on Monday that it had not initiated direct talks with Washington, and the Strait of Hormuz — a key shipping route carrying about 20% of the world’s oil — remains closed. US President Donald Trump told Axios he was willing to give the diplomatic process “not much time”, adding “either it goes fast or not at all”. He claimed the US was in “very deep talks with Iran” but also said he was ready for “strong military action” if diplomacy failed.
Tensions remain high across the Middle East. Saudi Arabia said its air defences intercepted several drones launched from Iraq by Iran-backed armed groups, targeting oil facilities in the Eastern Province and Riyadh. The Saudi foreign ministry condemned the “aggression” and called on Iraq to prevent its territory from being used for further attacks.
The conflict has already pushed up fuel costs for consumers and raised the risk of higher inflation, which could prompt central banks to raise interest rates. Meanwhile, European gas storage is at a historic low, according to research group Wood Mackenzie, which warned that if the Strait of Hormuz remains closed for two more months, storage levels will fall below 70% by 1 November — compared with a five-year average of 90%.
“Low European inventories, strong Asian demand and limited new LNG supply growth almost guarantee elevated prices through this winter and into 2027,” said Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie.
Susannah Streeter, chief investment strategist at Wealth Club, said markets were remaining “cautious given the twists and turns during this conflict”. Despite the sharp fall in crude, “there is still significant uncertainty baked into these prices and a reticence about whether negotiations will lead to a lasting breakthrough,” she added.