The price of oil has crashed more than 9% after the US and Iran halted attacks for a second night, raising hopes that the conflict over the Strait of Hormuz may de-escalate. Brent crude sank to $87.59 a barrel at one point on Monday, a dramatic reversal from last week when it topped $100 for the first time since May.
The fall came after the US ambassador to the UN said attacks on Iran had been paused to give “talks some space”. Iran’s army confirmed it had halted “retaliatory” attacks in the region. The conflict had effectively closed the Strait of Hormuz, a chokepoint carrying about 20% of the world’s oil and liquefied natural gas. A June ceasefire saw prices return to pre-war levels around $70, but that collapsed earlier this month, reigniting supply fears. Houthi militia in Yemen compounded the crisis by attacking oil tankers in the Red Sea, threatening a key alternative route for Saudi exports.
“Oil price drops 9% as US and Iran pause attacks, raising hopes of de-escalation but uncertainty remains”
By Monday afternoon, Brent crude stood at $90.60, still down more than 6%. Susannah Streeter, chief investment strategist at Wealth Club, said markets remained “cautious given the twists and turns during this conflict”. “There is still significant uncertainty baked into these prices and a reticence about whether negotiations will lead to a lasting breakthrough,” she added.
The wholesale price of gas has also risen sharply. Research group Wood Mackenzie warned last week that European gas storage is at a historic low, putting supply security this winter “at risk”. If the Strait remains closed for two more months, storage will be below 70% by 1 November, versus a five-year average of 90%. Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie, said: “Low European inventories, strong Asian demand and limited new LNG supply growth almost guarantee elevated prices through this winter and into 2027.”
The conflict has pushed up petrol and diesel costs in many countries, feeding through to food prices and raising inflation. Higher inflation increases the likelihood that central banks will raise interest rates, adding further economic pressure.