Oil prices fell sharply on Monday after the United States paused its military strikes on Iran, raising hopes that the conflict in the Middle East could de-escalate and ease disruptions to global supply. Brent crude, the international benchmark, dropped 9% to below $88 a barrel, retreating from last week’s surge above $100 triggered by Houthi attacks on Saudi tankers in the Red Sea.
The decline accelerated after US President Donald Trump stated that the US was having “good talks” with Iran, pushing Brent down around 8% for the day. The halt in hostilities followed 13 days of fighting, with Iran saying it had stopped retaliatory attacks after two nights without American missiles. US ambassador to the UN, Mike Waltz, confirmed that Trump had paused the bombing campaign to allow more time for diplomacy, while separate reports indicated that military officials had warned of dwindling munitions stocks.
However, analysts expressed scepticism that the pause would lead to a lasting solution. Ole Hvalbye of SEB Research noted that similar rallies on leaked news had faded when substance failed to materialise. John Evans of PVM added that a “mini-ceasefire” was not enough, arguing that only a meaningful decline in demand would sustain lower prices. He said: “A stay of military strikes might seem an improvement, but it does not come with any guarantees that oil will soon flow from the area.”
Last week’s 10% rise in Brent had reignited fears of prolonged inflation, with analysts at Deutsche Bank warning that central banks might need to hike rates more aggressively. The resulting pressure on sovereign bonds had pushed yields higher, but Monday’s oil price drop prompted a reverse. The yield on UK 10-year government debt fell below 5%, down 0.05 percentage points, while the two-year yield dropped 0.06 points to 4.35%.
Higher oil prices also pose a political risk for Trump, as Republicans grow nervous about inflation’s impact on their midterm election prospects. Some Federal Reserve policymakers may feel compelled to raise interest rates to counteract price increases, potentially slowing the US economy despite Trump’s preference for lower rates.
