Oil Falls 7% Amid Cautious Market Watch as Hopes for War End Rise

SadaNews - Oil prices fell as indications suggested that the U.S. diplomatic push to end the war with Iran could gain momentum, outweighing reports of additional troops being sent to the region, and the continued closure of the Strait of Hormuz for the most part.

Brent crude dropped by as much as 7% to near $97 a barrel, while West Texas Intermediate crude traded near $87.

The United States has prepared a 15-point plan aimed at helping to end the conflict, according to informed sources. The proposal, which was reported earlier by the New York Times, was delivered to Iran through Pakistan.

Military moves parallel to diplomatic efforts

Earlier, the administration of President Donald Trump ordered the deployment of about 2,000 troops from the 82nd Airborne Division to the region, according to someone familiar with the matter, while the White House was considering options to ease Iran's grip on the Strait of Hormuz, the vital waterway at the heart of the conflict.

Robert Rennie, head of commodity and carbon research at Westpac Banking Corp, said: "We have clearly moved from a stage that could escalate into a war of extermination between the U.S. and Iran to a negotiation phase, although the mutual distrust means this phase is likely to be complicated and protracted."

Oil is still on track to record a significant monthly increase after a volatile trading period, as investors monitor the implications of a war that has now entered its fourth week. In the heart of the conflict, Tehran has moved to assert its control over the Strait of Hormuz, which has choked oil and gas supplies from Gulf producers to global markets and raised fears of an energy crisis.

Rapid Changes in the U.S. Stance

The public stance of the United States on the conflict has changed rapidly in recent days. Over the weekend, Trump escalated tensions by threatening to bomb power stations in Iran if the Strait of Hormuz was not fully reopened within 48 hours.

The president later walked back that deadline, stating he would allow five days for talks. The announced U.S. initiative toward Tehran, along with the decision to deploy additional forces, came even as Iran tightened its grip on the vital strait.

Details of the latest proposal remain unclear, although Trump publicly hinted that any agreement should include preventing Iran from acquiring nuclear weapons or enriching fissile materials for civilian purposes. It was not clear whether Israel had agreed to this proposal.

Charu Chanana, senior investment strategist at Saxo Markets, stated that the price drop reflects "a decrease in the war risk premium." She added, "But it's unlikely to be seen as a signal that the danger is over, as Iran has publicly denied engaging in direct talks, while military activities and troop deployments continue."

Tensions Persist Despite Signs of De-escalation

On Tuesday, President Trump indicated that Iran had provided a "gift" as evidence of goodwill in the talks he claims are ongoing. He did not clarify the nature of this gift but confirmed it relates to energy flows through the strait.

White House Press Secretary Caroline Levitt stated that despite "a new opportunity for diplomacy," U.S. military operations would continue unabated.

Iran stated that foreign vessels are allowed to pass through the waterway as long as they do not support hostile actions against the country and comply with regulations set by Tehran. These remarks came in a message distributed to members of the International Maritime Organization on Tuesday.

Israel, which initiated the war in late February in a joint attack with the United States, showed no signs of de-escalation, launching strikes across Tehran early Wednesday. In its report on the ceasefire plan, Channel 12 stated that Israel feels concerned about the proposal and believes Iran may not accept it.

Wider Implications for Energy and Markets

Nonetheless, Chinese Foreign Minister Wang Yi has urged his Iranian counterpart Abbas Araqchi to engage in negotiations with the United States as soon as possible to end the war, according to a government statement. China is the world's largest oil importer and the main buyer of Iranian oil.

Chris Weston, head of research at Pepperstone Group in Melbourne, noted that "the market is influenced by the willingness to reach some form of agreement that pushes the conflict towards a ceasefire." He added that safe passage through the strait will be "the cornerstone" of any future agreement.

As refineries around the world race to secure alternative oil supplies, particularly in Asia, U.S. crude exports are expected to surge next month, with some participants anticipating record flows abroad.

In a sign of the shock caused by the fighting, Chevron has warned that California is heading towards an energy crisis and that the company may abandon refining operations in the state unless authorities roll back taxes and regulations. The state is particularly vulnerable due to its reliance on importing about 20% of its refined fuel from Asia.

Fuel product prices have been rising at a pace exceeding that of crude itself in recent weeks. In the United States, the national average for diesel prices surged to well over $5 a gallon, the highest level since late 2022. In California, prices for fuel used in shipping, construction, and agriculture surpassed $7 a gallon, marking a record high.

In Australia, hundreds of service stations reported fuel shortages. Energy Minister Chris Bowen told Parliament on Tuesday that at least 600 retail stations had run dry of at least one type of fuel, with shortages concentrated in the two most populous states, New South Wales and Victoria.

South Korea has also bolstered emergency plans in preparation for a worse-case scenario in the Middle East, with Prime Minister Kim Min-sook stating that the government needs to enhance proactive response systems as signs of ongoing conflict become evident.