Brent crude oil prices experienced a dramatic reversal on Monday, plummeting from a high of $119.50 per barrel to around $90 by the close of trading, following comments by US President Donald Trump suggesting a potential complete to military action in Iran.
The volatility began as the conflict between the US, Israel and Iran escalated, initially driving oil prices to their highest level since 2022. Fears of supply disruptions, particularly through the Strait of Hormuz – a critical chokepoint for global oil shipments through which 20% of the world’s oil supply flows – fueled the surge. Gulf Arab nations had begun to curb output as concerns mounted over the safe passage of tankers, exacerbating the situation. West Texas Intermediate (WTI), the US benchmark, as well saw significant swings, trading in a range of $38, the widest since the pandemic in 2020.
Early in the day, G7 finance ministers convened an emergency meeting, exploring the possibility of a coordinated release of strategic oil reserves, according to sources. The International Energy Agency (IEA) was involved in discussions aimed at mitigating the impact of rising prices. While a firm agreement on a release was not reached, the ministers signaled their readiness to act if the situation deteriorated further.
The turning point came late Monday when President Trump, in an interview with CBS News, stated that the war with Iran was “very complete, pretty much.” This announcement triggered a rapid sell-off in the oil market. Trump also indicated he was considering waiving oil-related sanctions and providing US Navy escorts for tankers through the Strait of Hormuz, stating, “We’re looking to keep the oil prices down.” He characterized the price increases as “artificial” and linked to the conflict.
Later, addressing Republicans, Trump reiterated his view that the military engagement was a “short-term excursion,” but also cautioned that “we haven’t won enough yet.” This nuanced statement introduced a degree of uncertainty, tempering initial optimism.
The price swings also impacted broader financial markets. Asian stock markets initially tumbled on Monday, reflecting the heightened geopolitical risk. However, as oil prices retreated, share prices rebounded, with the Dow Jones Industrial Average closing up 0.5 percent. This suggests investor hopes for a swift resolution, though caution remains.
The economic implications of a prolonged conflict had been a major concern. The European Commission had warned of a substantial stagflationary impact if the conflict continued for more than a couple of weeks. Higher energy costs would have rippled through economies, affecting household budgets, business expenses, and consumer prices. Sea freight prices had already risen sharply, increasing by 20 percent in the previous week, adding to inflationary pressures.
The situation remains fluid. Questions persist regarding the internal dynamics within Iran, where Ayatollah Mojtaba Khamenei was recently named as his father’s successor, and the potential for continued conflict between Iran and Israel. The possibility of Iran continuing its campaign to disrupt shipping and attack oil infrastructure in Gulf states also remains a significant concern. As of Monday evening, the US had not formally declared an end to military operations, leaving the future trajectory of the conflict uncertain.
