Oil prices fell around 2% toward midday Tuesday after reports of a potential diplomatic breakthrough between the United States and Iran raised hopes of easing tensions in the Middle East.
Brent crude futures and West Texas Intermediate (WTI) crude both declined around 2% after the report emerged but soon gained a little and were trading around 1% lower for the day at 12:00 PM ET.
The report triggered a retreat for oil from levels near five-month highs as Brent futures were hovering around $111 earlier in the day.
Positive signal for US-Iran talks
According to Qatari newspaper Al-Araby Al-Jadeed, Qatar and Pakistan have proposed a framework aimed at easing the conflict, with Washington and Tehran reportedly responding positively. The proposal seeks to address demands from both sides and could create a path toward negotiations.
The reported diplomatic opening has offered some relief to oil markets, which have been pricing in significant risks to production and transportation as the conflict continues.
The proposal reportedly includes measures intended to address some of Iran’s demands, potentially helping the two sides move closer to negotiations.
One element involves the possible transfer to Iran of interest earned on $6 billion in Iranian funds frozen in banks in Qatar. The arrangement would represent a partial response to Tehran’s demand for the return of its frozen funds.
Iran has also reportedly agreed to a confidential visit by the International Atomic Energy Agency (IAEA) to its nuclear facilities. The inspection would not be publicly announced and could help address Washington’s concerns about Iran’s nuclear programme.
The reported developments have raised hopes that diplomatic engagement could reduce the risk of further escalation. However, the proposal remains a reported framework rather than a confirmed agreement, and negotiations face unresolved differences between Washington and Tehran.
Shipping disruptions keep supply risks elevated
Oil markets have experienced sharp price swings since the conflict involving the United States, Israel and Iran began in February.
Expectations of de-escalation have periodically eased prices, while renewed threats to energy infrastructure and shipping routes have pushed them higher.
Despite the latest price retreat, concerns about energy transportation through the Gulf remain significant.
Attacks on commercial vessels have increased in recent weeks, adding to the uncertainty surrounding shipments through the Strait of Hormuz, a critical route for global oil trade.
Market data indicated that at least 18 vessels were attacked across the Gulf region during the preceding fortnight, intensifying concerns about the security of the waterway.
The disruption has raised transportation costs and increased the risks associated with moving oil from the region. Even if producers maintain output, difficulties shipping crude to international markets can restrict the amount reaching buyers.
Saudi Arabia is also facing additional risks from the conflict involving Yemen’s Houthis.
The group claimed fresh attacks on Saudi energy and transportation facilities on Monday, including targets in Yanbu and Shaybah. Saudi authorities had not independently confirmed those particular claims.
The continuing threats have complicated efforts to stabilise supplies and have kept traders alert to the possibility of further disruptions.
A potential easing of tensions would not automatically restore normal shipping conditions. Tanker attacks, higher insurance premiums, increased freight costs and the possibility of renewed disruption continue to affect the movement of energy supplies.
These risks mean prices could remain elevated even if negotiations make progress, particularly if shipping routes remain vulnerable or exporters struggle to move crude efficiently.
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