Global oil markets recorded their sharpest decline in months on Monday after President Donald Trump announced that the United States and Iran had signed a memorandum of understanding designed to end the conflict between the two countries and restore shipping through the Strait of Hormuz.
The development triggered a broad selloff in crude markets as traders moved to remove a significant portion of the geopolitical risk premium that had supported prices during more than three months of disruption in the Gulf region.
Brent crude futures fell $4.16, or 4.76%, to settle at $83.17 per barrel. U.S. West Texas Intermediate crude dropped $4.13, or 4.87%, ending the session at $80.75 per barrel. Both benchmarks closed at their lowest levels since March 4.
According to a U.S. official, the memorandum was signed by President Trump, Vice President JD Vance, and Iranian parliament Speaker Mohammad Bagher Qalibaf. A formal signing ceremony is expected to take place in Geneva on Friday.
Iran’s semi-official Mehr news agency reported that the draft agreement calls for the Strait of Hormuz to reopen within 30 days under arrangements managed by Iran.
The prospect of renewed oil exports through one of the world’s most important shipping routes immediately changed market expectations.
“With a wall of oil supply very possibly on the way, the selloff looks justified,” said Dennis Kissler, senior vice president of trading at Bok Financial.
The Strait of Hormuz handles roughly one-fifth of global oil and liquefied natural gas shipments. Its closure during the conflict removed millions of barrels of oil and gas supply from international markets, tightening inventories and fueling higher energy prices worldwide.
Despite the agreement, analysts cautioned that restoring normal flows will not happen overnight.
“Getting the vessel supply chain in place and the restarts all running smoothly within the Arab Gulf will be tough. And some vessel owners will be hesitant to ballast towards the Arab Gulf until we hear from insurers,” said Neil Crosby, head of research at Sparta Commodities.
Energy traders are closely monitoring how quickly producers across the Middle East can restart damaged facilities and resume exports. Industry officials say a complete recovery to pre-war production and refining levels could take weeks, months, or even years.
The International Energy Agency estimates that more than 14 million barrels per day of oil production remain offline, representing approximately 14% of global demand.
Iran also signaled a more competitive pricing strategy as it prepares for a return to international markets. The National Iranian Oil Company lowered the official selling price of its light crude for Asian buyers to a premium of $7.15 per barrel above the Oman/Dubai benchmark for July, down from $13 per barrel the previous month.
Market analysts have begun adjusting their outlooks to reflect the possibility of increased supply. One major forecast revision released Monday reduced average Brent crude expectations to $75 per barrel for the third quarter of 2026 and $70 per barrel for the fourth quarter, citing the anticipated normalization of trade flows through the Strait of Hormuz.
While prices have fallen sharply, some experts believe longer-term support remains in place because global inventories are unusually low.
UBS analyst Giovanni Staunovo said lower stock levels, a gradual production restart process, and efforts to replenish strategic reserves could help support crude prices over time.
Government stockpiles have been heavily depleted during the conflict. Data released Monday by the U.S. Department of Energy showed crude oil holdings in the Strategic Petroleum Reserve fell to 340.3 million barrels, the lowest level since 1983.
Inventories declined by 8.9 million barrels, marking the third-largest drawdown on record as part of an agreement to release 172 million barrels from the emergency reserve.
Political uncertainty in the region also remains a factor. Israeli Defense Minister Israel Katz said Israeli forces would continue operating in security zones across Lebanon, Syria, and Gaza indefinitely to protect the country’s borders and settlements.
Diplomatic efforts are expected to continue beyond the current agreement. Sources previously told Reuters that future negotiations will address Iran’s nuclear program, one of the most sensitive unresolved issues between Tehran and Western governments.
In a separate development, the E4 nations—the United Kingdom, France, Germany, and Italy—said on Sunday they were prepared to lift sanctions on Iran if Tehran takes agreed steps regarding its nuclear activities.
For now, financial markets are focused on one question: how quickly oil can return to global supply chains. The answer will likely determine whether Monday’s steep decline marks the beginning of a sustained price correction or merely a temporary adjustment after months of war-driven disruption.
