Yesterday, oil prices collapsed by more than 5% within just a few hours. At the same time, we heard from Marco Rubio that talks with Iran “will be given every opportunity to succeed.” On one side, we are talking about diplomacy and a possible agreement. On the other, the United States has just struck targets in southern Iran, while Tehran is vowing retaliation. So what is actually happening? Are we moving toward peace or toward escalation?
WHY OIL FELL
Yesterday, WTI closed at $89.4 per barrel. Brent closed at $95. Both dropped by more than 5% in a single trading session. To understand how significant that move is, declines like this in one day are not common in the oil market.
And what triggered the selloff? A single statement from U.S. Secretary of State Marco Rubio. During a cabinet meeting at the White House, Rubio said that negotiations with Iran had shown some progress and that Trump preferred the diplomatic route. “The bottom line is that we prefer the negotiated diplomatic path and will give it every opportunity to succeed,” he said.
“So is everything over now?” you might ask. Not exactly. Because Rubio himself left open the possibility of “other options” if diplomacy fails. In other words, “other options” translates into more military strikes. And notice something important. No agreement has been signed. The only thing said was that there might eventually be one. And that alone was enough to move billions.
THE HORMUZ BOTTLENECK
And the entire discussion continues to revolve around one narrow stretch of water: the Strait of Hormuz. Before the war, around 20% of the world’s oil passed through it. Today, ship traffic is only about 10% of normal levels. And out of that traffic, only a small portion consists of oil tankers. In other words, if we see 10 ships crossing per day, barely 2 of them are carrying oil.
So what’s going on? According to leaks, one possible solution being discussed is for Iran and Oman to regulate passage and impose a fee. A so called “environmental fee.” In practice, tolls, which according to discussions could amount to around $1 per barrel. You might say, “Is one dollar really that much?” When oil is at $120, not really. But when it falls to $55 like it did in December, things change.
Trump, however, has made his position crystal clear. “Nobody will control it. It’s international waters,” he said. “The strait will remain open for everyone.” He even threatened Oman, saying that “they will behave like everyone else, otherwise we’ll blow them up.” In other words, the main sticking point is the principle of free navigation. And that is not something the U.S. appears willing to negotiate.
ARE WE CLOSE TO A DEAL?
And this brings us to the big question. Are we heading toward an agreement or not? On one side, Iranian state media reported yesterday that a draft memorandum exists which would restore shipping activity in Hormuz to prewar levels within one month of signing. On the other side, the White House dismissed the entire report as “fake.”
And as if that weren’t enough, Trump himself said he was “not satisfied” with the negotiations. At the same time, he stated that “we are not talking about sanctions relief, money, or anything else.” Meanwhile, Ali Bagheri Kani from the Iranian side made it clear: “Until we agree on everything, we have agreed on nothing.”
And there are still many unresolved issues. Iran is demanding $12 billion from its frozen assets. At the same time, the war in Lebanon involving Hezbollah is escalating. And Trump is pushing for an expansion of the Abraham Accords. In other words, the package is enormous.
And one reminder from experts. Even if an agreement were signed today, it would still take at least four months for oil flows to return to 80% of normal levels. According to the head of ADNOC, full normalization is not expected before the first or second quarter of 2027. So even the optimistic scenario is a slow process.
