Key facts
- Oil prices dropped 7% to a one-week low.
- The U.S. and Iran have paused military operations, with President Donald Trump allowing more time for diplomacy.
- The pause in hostilities eased inflation fears and impacted Federal Reserve rate hike expectations.
- Analysts remain cautious due to the lack of a signed framework for de-escalation.
- Houthi militia attacks in the Red Sea and drone attacks on Saudi oil facilities introduced uncertainty.
Oil prices plummeted 7% on Monday, reaching a one-week low, as the United States and Iran paused military operations, sparking hopes for a diplomatic resolution to the conflict and easing concerns about global energy supplies. Brent crude fell to $89 a barrel, while U.S. West Texas Intermediate crude futures dropped to $82.89 a barrel. President Donald Trump paused U.S. attacks to allow more time for diplomacy, a move echoed by an Iranian army spokesperson who confirmed Tehran had ceased retaliatory actions. The recent escalation of conflict in the region had previously led to a sharp rise in oil prices, partly due to fears of the closure of the Strait of Hormuz, a critical shipping route for approximately 20% of the world's oil and liquefied natural gas. Earlier this month, the collapse of a ceasefire reignited these supply concerns, pushing prices up. Further anxieties were added by Houthi militia attacks on oil tankers in the Red Sea, threatening another key export route. Analysts remain cautious, noting the historical volatility of the conflict and the uncertainty surrounding whether current negotiations will yield a lasting breakthrough. Persistent high oil prices have previously contributed to increased costs for fuel and knock-on effects on inflation, particularly for goods like food, as businesses pass on higher operational expenses. The Federal Reserve's monetary policy decisions are also being watched, with a 36% chance of a rate hike indicated by CME Group data, which could be influenced by easing inflation pressures.