US-Iran Talks Prompt 8% Decline in Global Oil Prices

Global Oil Market Update

Oil Prices Plunge 8% Following Trump's Postponement of Military Strikes

On Monday, oil prices dropped 8% after U.S. President Donald Trump announced a postponement of military strikes against Iranian power plants for five days, citing constructive talks to resolve hostilities in the Middle East. Brent futures fell by $8.92, or 8.0%, to $103.27 a barrel, while U.S. West Texas Intermediate lost $7.17, or 7.3%, to $91.06.

Recent Price Volatility

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Extreme price changes in recent weeks have boosted both crude benchmarks' historic or actual 30-day futures volatility to the highest levels since April 2022. The war has already damaged major energy facilities in the Gulf and effectively halted shipping through the Strait of Hormuz, which handles about 20% of global oil and liquefied natural gas flows.

Middle East Conflict Impacts Global Economy

Analysts have estimated a loss of 7 million to 10 million barrels per day of Middle East oil production. The crisis in the Middle East is worse than the two oil shocks of the 1970s combined, according to Fatih Birol, executive director of the International Energy Agency.

Central Banks Respond to Energy Price Shock

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The U.S. Energy Secretary Chris Wright stated that the United States is "highly unlikely" to release more oil from its Strategic Petroleum Reserve to calm energy markets during the war with Iran. The Federal Reserve Governor Stephen Miran noted that it is too soon to say what the energy price shock from the Iran war will do to inflation. The Bank of Japan is considering tweaks to its policy language in April, keeping alive the chance of a near-term increase to interest rates as the weak yen and Middle East conflict pile inflationary pressures on the economy.

Economic Impacts

The war has led to a temporary waiving of U.S. sanctions on Russian and Iranian oil already at sea. Indian refiners plan to resume buying Iranian oil, while refiners elsewhere in Asia are examining such a move. The Japanese government is considering intervention in crude oil futures as the Middle East crisis drives energy prices sharply higher. Euro zone consumer confidence fell to its lowest level since late 2023 this month, offering early evidence of how the war with Iran and surging energy prices may impact the broader economy.