Oil Stabilizes After Sharp Drop Amid Anticipation of Tehran's Response to Washington's Proposal

SadaNews - Oil prices stabilized after falling by about 8% in the previous session, as the United States and Iran consider a new proposal to end the war in the Middle East.

Brent crude surpassed $102 per barrel, while West Texas Intermediate crude approached $96.

A source familiar with the matter stated that Washington has presented a one-page memorandum of understanding that could lead to a gradual reopening of the Strait of Hormuz, and Iran is expected to respond in the coming days.

The War's Impact on Energy Markets

The war has turned global energy markets upside down, as the crucial sea passage has been largely closed since the end of February.

Currently, this waterway is facing a dual blockade, with Tehran impeding traffic, while the U.S. Navy prevents ships from reaching or departing Iranian ports to pressure the country’s oil industry. Shipowners remain cautious, with the strait being nearly empty.

Vandana Hari, founder of the analysis firm Vanda Insights, said, "The drop in crude again is excessive optimism and premature, as the only thing the market cares about is how and when the Strait of Hormuz will be reopened." She added, "At this stage, that possibility is less than a faint shadow on the horizon."

U.S. President Donald Trump posted on social media on Wednesday, without providing details about the proposal, that the U.S. will end its military campaign and lift the blockade, "assuming Iran agrees to the terms, which is likely a big assumption." He added, "If they do not agree, bombing will begin."

Pressure to End the War

The U.S. president is facing pressure to end the war as retail energy prices rise in the United States, raising voter concerns about affordability.

Additionally, Trump and Chinese President Xi Jinping are set to hold a summit in Beijing on May 14 and 15. This week, China's top diplomat called for a swift reopening of Hormuz in a meeting with his Iranian counterpart.

Will Todman, a senior fellow at the Middle East Program at the Center for Strategic and International Studies, said, "President Trump seems very keen to ensure that Iran does not disrupt his summit with Xi."

He added, "The U.S. and Iran would never quickly agree on a comprehensive deal, but an agreement on a framework gives them time and some calm."

Suspension of the "Freedom Project"

The latest U.S. proposal came after Trump suspended a short-term mission to secure safe passage for vessels through Hormuz. The informed source stated that detailed discussions on Iran's nuclear program, a central issue that led Washington to start the war, will come later, adding that nothing has been agreed upon yet.

RBC Capital Markets analysts, including Helima Croft, wrote in a note: "There is no doubt that a section of the market will view a one-page memorandum of understanding to resume negotiations over the next thirty days as a significant advancement." They added, "But it is unlikely that the memorandum will translate into an immediate resumption of shipping or large-scale production restart."

Meanwhile, U.S. government data showed that petroleum product exports reached a record high last week, as the country became a major fuel supplier to the world amid the supply crisis caused by the conflict. Crude oil stocks declined.