WTI crude oil futures are trading lower today by more than 5%, while ICE Brent futures are down more than 1%.
Crude oil prices have stabilised as the geopolitical risk premium diminishes, with the market increasingly pricing in a diplomatic solution, supported by reports that Iran is proposing to allow free shipping through the Strait of Hormuz, while Donald Trump appears set to make compromises to reach an exit from his war.
Reuters reported yesterday that Iran has proposed a possible breakthrough, suggesting that ships be allowed to pass freely through the Omani section of the Strait of Hormuz if an agreement is reached to avoid further conflict.
This marks the first major indication that Tehran is stepping back from more aggressive demands, such as imposing a unilateral shipping toll. A Western security source told Reuters that the plan is still being developed and depends on Washington meeting Tehran’s conditions.
Furthermore, addressing a key sticking point in talks to end the Iran war, which has closed the Strait of Hormuz for seven weeks and choked off roughly one-fifth of the world’s oil supply, Trump said Tehran had offered not to possess nuclear weapons for more than 20 years.
“We’re going to see what happens. But I think we’re very close to making a deal with Iran,” Trump told reporters outside the White House on Thursday.
Whether Trump’s statements are true or not, the market seems to be buying the ceasefire narrative for now. The economic and political costs are mounting for Trump amid rising prices and growing domestic discontent, as noted in several reports. This has reinforced the hypothesis that Trump wants to find a way out of this war, or at least to make claims about it, to divert attention from energy prices.
According to Politico, President Trump is intensifying efforts to end the Iran war, signalling a willingness to make more compromises despite his tough public posture. A senior Gulf official told Politico that although Trump is serious about a deal, Tehran is refusing to offer a face-saving exit. Key disputes remain over the length of an enrichment moratorium and the removal of Iran’s nuclear materials.
The efficacy of the U.S. blockade is increasingly under scrutiny, with the current maritime posture appearing more as a symbolic projection of authority than a functional enforcement of the waterway’s closure. According to Reuters, shipping data confirms that at least two U.S.-sanctioned supertankers, the RHN and the Alicia, successfully entered the Gulf via the Strait of Hormuz in direct defiance of the newly imposed restrictions. These transits challenge the narrative provided by U.S. Central Command, which maintained that no vessels had breached the perimeter and that ten ships had been intercepted since Monday.
While ING analysts estimate that the closure has disrupted approximately 13 million barrels per day of oil flow, Tehran continues to export over 1.7 million barrels per day by leveraging onshore storage to sustain production levels.
This persistent activity is likely to recalibrate market assessments regarding the actual scope of the supply crisis, even as structural damage continues to weigh on regional stability.
Optimism surrounding a ceasefire in Lebanon could also add an extra layer of pressure on crude oil prices, given the interconnectedness of the factions in the Middle East.
A 10-day ceasefire between Israel and Lebanon took effect Friday, potentially removing a major obstacle in broader U.S.-Iran peace talks. President Trump expressed optimism, inviting leaders to the White House for “meaningful talks” while signalling he might extend the current truce with Tehran. Israel’s campaign in Lebanon has been a major obstacle to securing a peace deal.
Conversely, despite signs of a potential breakthrough in this war, escalation risks remain, particularly the perception that the United States may be withdrawing because it has failed to achieve its objectives decisively. This would sustain some of the geopolitical risk premium in oil prices, in addition to the premium stemming from long-term structural damage to oil infrastructure across the region.
Also, the outlook remains fragile. Prime Minister Netanyahu insisted that Israeli troops will remain in an “expanded security zone” in Lebanon and demanded Hezbollah’s disarmament, while Israeli security officials remain sceptical of the ceasefire, according to the Wall Street Journal. Meanwhile, Defence Secretary Pete Hegseth warned Iran that the U.S. remains “maximally postured to restart combat operations” if a long-term deal is not reached. Additionally, U.S. and Iranian negotiators have scaled back their expectations for a comprehensive peace deal and are instead seeking a temporary memorandum to prevent a return to conflict, two Iranian sources told Reuters on Thursday.
These underlying escalation factors will keep the risk of a new flare-up alive, particularly outside of market trading hours. Last week, we saw a ceasefire narrative collapse immediately, but Trump still achieved his desired goal: lowering oil prices. I wouldn’t rule out the possibility that the narrative of an impending end to the war and the agreement serves the same purpose: to cap energy prices. It seems that, in Trump’s view, if gasoline prices at the pump don’t rise, then nothing has happened.
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