Global oil prices fell sharply on Monday after the United States and Iran paused military attacks, raising hopes that renewed diplomatic efforts could ease tensions and stabilise energy markets.
Brent crude, the international benchmark for oil, dropped by more than nine per cent at one stage to $87.59 per barrel, reversing last week’s rally that pushed prices above $100 for the first time since May.
The decline followed comments by the US ambassador to the United Nations, who said Washington had suspended strikes on Iran for a second consecutive night to allow negotiations to continue.
Iran also confirmed it had halted retaliatory attacks across the region in response.
The conflict had earlier sent oil prices soaring after fighting disrupted shipping through the Strait of Hormuz, a strategic waterway that handles about 20 per cent of global oil and liquefied natural gas (LNG) exports.
Although a memorandum of understanding signed in June briefly restored calm and brought oil prices back to around $70 per barrel, the collapse of that agreement earlier this month reignited fears of supply disruptions and triggered another sharp price surge.
Concerns intensified after Yemen’s Houthi rebels attacked oil tankers in the Red Sea, threatening another major export route used by Saudi Arabia to bypass the Strait of Hormuz.
By Monday afternoon, Brent crude had recovered slightly to $90.60 per barrel, though it remained more than six per cent lower than the previous day’s close.
Susannah Streeter, Chief Investment Strategist at Wealth Club, said investors were reacting cautiously despite the temporary easing of hostilities.
“Markets remain cautious given the twists and turns during this conflict,” she said, noting that uncertainty over whether negotiations would deliver a lasting breakthrough continued to weigh on sentiment.
The conflict has also driven up global gas prices.
According to research firm Wood Mackenzie, European gas storage levels remain historically low, raising concerns about energy security ahead of winter.
The firm warned that if the Strait of Hormuz remains closed for another two months, European gas storage could fall below 70 per cent by 1 November, well below the five-year average of 90 per cent.
Wood Mackenzie Vice President for Gas and LNG Research, Massimo Di Odoardo, said low inventories, strong demand from Asia and limited new LNG supplies were likely to keep gas prices elevated through the winter and into 2027.
The conflict has also increased the cost of petrol and diesel in many countries, adding pressure on businesses and consumers.
Rising fuel costs often feed into higher transport and food prices, contributing to inflation.
Higher inflation could influence central banks to maintain or even raise interest rates in an effort to curb price growth.
The European Central Bank raised its benchmark interest rate in June, citing inflationary pressures linked to the conflict.
Meanwhile, expectations that the Bank of England would cut interest rates this year have faded, with financial markets now anticipating a possible rate increase later in the year.
The Bank of England is expected to keep its benchmark interest rate unchanged at 3.75 per cent when policymakers meet later this week.
