Oil prices extend sharp decline as diplomacy hopes cool fears over Hormuz

Oil prices continued to drop on Thursday as investors considered the possibility of a peace agreement in the Middle East. This deal could help ease worries about oil supply and allow for the gradual reopening of the Strait of Hormuz. The international benchmark, Brent crude, decreased by 3.5 percent to $97.5 per barrel by 0715GMT. Meanwhile, the US benchmark, West Texas Intermediate (WTI), fell over 3 percent to $92 per barrel. This drop followed news that the US sent a one-page memorandum of understanding to Iran through intermediaries from Pakistan. The document aims to formally end the conflict and set up a plan for reopening the Strait of Hormuz gradually. Iran is expected to reply within days after stating it is reviewing the US proposal. However, broader discussions regarding Iran’s nuclear program will likely happen later. US President Donald Trump warned that a deal is not finalized yet and mentioned it would be a “big assumption” to think Iran would accept the offer. He also indicated that military strikes could resume if Tehran does not comply. The price drop was also influenced by Trump's unexpected decision to pause his plan to help commercial ships in the Strait of Hormuz. This change came after a key ally in the Gulf decided to stop the US military from using its bases and airspace for the operation, as reported by NBC News on Wednesday. This shift has raised hopes that Washington may be moving from military action to diplomatic solutions, reducing fears of further disruptions in this vital energy transit route. The Strait of Hormuz is crucial for global oil and liquefied natural gas transportation. Recent conflicts in the region had caused prices to rise sharply due to concerns about supply shortages.