Market reaction to Trump's decision
On Monday, as Donald Trump claimed a peace deal with Iran was 'imminent', Brent crude dropped over five percent. The price of oil is closely watched as a barometer of global economic health and political stability. However, Iran's leadership dismissed these overtures, stating no immediate talks were planned. West Texas Intermediate slipped to around $80 a barrel, after losing more than 5% on Monday, while Brent closed near $84 in the previous session. On Tuesday, oil prices tumbled further, with West Texas Intermediate trading at $75.64 per barrel, down $4.70 or 5.85%, and Brent at $79.16, down $4.61. On Wednesday, Brent crude fell below $79 per barrel, marking a weekly decline of more than 10 per cent.
Jim Reid, an analyst at Deutsche Bank, noted that diplomatic efforts had created a 'hope' for a de-escalation. Yet, Patrick Munnelly from Tickmill Group warned that even if talks resume, the Strait of Hormuz remains closed. Trump told reporters in the Oval Office on Monday that he expects a full reopening of the Strait of Hormuz 'literally by tomorrow.' Treasury Secretary Scott Bessent said a deal could come Tuesday or Wednesday, while Secretary of State Marco Rubio said talks involving Iran and Oman had made progress. Qatar’s foreign ministry, which has helped mediate negotiations between Washington and Iran, said the two nations were in “very progressive stages” to resolve the conflict, with drafts of a potential agreement being circulated.
Strait of Hormuz remains a bottleneck
Iran's foreign ministry spokesperson, Esmail Baghaei, said discussions with Oman had aimed to secure a temporary safe passage through the Strait. But the Iranian government emphasized that a lasting solution was not on the horizon. Tehran denied it was talking with the US, but said discussions with Oman to get more ships moving through the Strait of Hormuz are making progress. Washington must 'take the first step and change its behavior,' Mohsen Rezaee, adviser to Iran’s Supreme Leader, said on Iranian state TV. Iran is also seeking control over inbound shipping and visibility over outbound traffic, with the ability to intervene when it sees fit. A cargo vessel was struck by an unknown projectile in the strait and suffered a complete blackout on Tuesday, according to a report from the Marisks maritime risk management group.
The strait, a critical route for oil shipments, has remained partially blocked since mid-February, when tensions between the US and Iran escalated. Until the route reopens, global oil supply remains at risk. Commodity shipments through the Strait of Hormuz — which carried about a fifth of the world’s crude oil and liquefied natural gas before the war — have slowed to a trickle. Just six vessels were tracked moving through Hormuz on Monday, down from seven a day earlier, while traffic through Bab el-Mandeb was also largely unchanged. A cargo vessel was also struck near Oman, adding another complication to the negotiations. Saudi Aramco estimates the world has lost more than 2.6 billion barrels since fighting began in February.
Munnelly pointed out that a diplomatic resolution may reduce fears of conflict but does not necessarily return supply to normal. 'The timeline between resuming talks and reopening the strait is still unclear,' he said. Trump said his latest offer is Tehran's 'last chance.' He added, 'I want to give them every last chance before decapitation,' without clarifying what negotiations he was referring to or who was involved. President Trump has renewed threats to Iran over access to the narrow waterway, saying, “The Strait’s going to be open very soon or they are going to get hit very hard.” Goldman Sachs expects Brent to remain between $80 and $90 until there is either a confirmed agreement or another major escalation. Brent was already below that range Tuesday afternoon, suggesting traders may have gotten a little ahead of the diplomats.
European markets and fuel prices
Despite the volatility, European stock markets rose, with Germany's Dax climbing 1.3 percent and France's Cac 40 up 1.2 percent. However, the UK's FTSE 100 edged up only slightly, held back by a sharp fall in Astrazeneca's shares. Meanwhile, the UK government's borrowing costs eased slightly as the yield on 10-year UK bonds fell over eight basis points to around 4.95 percent.
On the road, UK drivers face rising prices at the pump. The RAC reported that petrol now averages 160.85p per litre, up from 150.72p in early July. The spike in cost follows a pattern seen during the 2022 energy crisis caused by Russia's invasion of Ukraine.
Simon Williams, head of policy at the RAC, said the price could stabilize this week. But for diesel, the trend is expected to continue upward. Oil has swung wildly in recent weeks as fighting resumed following the collapse of a June truce and as the conflict expanded to the Red Sea. Trump has repeatedly cited diplomatic efforts when he backed off threats of military escalation only to see talks fail, and on Monday called off an attack on Iran that he said would have been the biggest since World War II.