Oil slips from recent highs as Iran signals diplomacy, but Hormuz stays shut

Oil prices retreated on Thursday after a 4 percent surge the session before, as Iran told Washington it was still open to diplomacy to end their war — while simultaneously insisting the Strait of Hormuz would not reopen until its demands were met. The gap between those two positions is exactly what is keeping crude prices in triple digits.

At 4:05 GMT, Brent crude futures were down 89 cents, or 0.86 percent, at $102.20 a barrel, Economy Middle East reported. West Texas Intermediate was off 78 cents, or 0.85 percent, at $91.38. Both benchmarks remain far above pre-war levels, reflecting a market that has not yet been convinced the Strait — through which a fifth of the world's oil normally flows — will open any time soon.

On Wednesday, a senior Iranian official indicated that Tehran was examining Washington's reply to its peace proposals, after the two sides held indirect talks the previous day. Iran's core demands center on lifting a U.S. naval blockade of Iranian ports and reopening the Strait of Hormuz. But Iran's security chief Mohsen Rezaei was unambiguous: the Strait would not reopen until Iran's conditions were met. Iranian President Masoud Pezeshkian reinforced that line at the UN General Assembly, telling the body that Tehran would not surrender to U.S. pressure.

Ships of the World, start your engines. Let the oil flow!— Donald Trump, U.S. President

That post — made when an earlier memorandum of understanding was announced — captures how quickly optimism can move markets, and how quickly the physical reality reasserts itself. Brent dropped more than 8 percent in a single week on news of that interim deal, according to AGBI, before recovering as the terms proved murkier than the headlines suggested.

On Wednesday, Secretary of State Marco Rubio described reaching an agreement with Iran as something that would demand sustained effort, while also noting that President Trump had military options available. That dual-track message — negotiate, but with force in reserve — has become the defining tone of Washington's public posture.

The conflict began on February 28 and has lasted more than 100 days, according to AGBI. Qatar and Pakistan have helped mediate. Qatar's foreign ministry announced that the two sides had settled on a roadmap toward a final deal within 60 days, forming a high-level committee to oversee the process alongside working groups dedicated to nuclear issues and sanctions. Technical talks have continued at the Swiss mountain resort of Burgenstock. But the Strait has remained closed, and Iran has signaled it may also seek to charge fees for traffic through it even after any reopening.

The market's expectation of a swift reopening has been premature, MST Marquee energy research head Saul Kavonic told Reuters. Iran is likely to continue finding pretexts to stymie flows through the waterway, he added, because that closure remains Tehran's primary leverage.

Even if the Strait reopened tomorrow, analysts warn the damage to oil markets would take months to unwind. Between 11 million and 13 million barrels a day of production was taken offline during the conflict, according to Foreign Policy, largely because producers including Iraq and Kuwait had no tankers available to move their crude. Sheikh Nawaf Saud Al-Sabah, CEO of Kuwait Petroleum Corporation, has said that up to 4 million barrels a day of Gulf output could stay offline for months. According to AGBI, Iraq plans to bring its production up gradually to nearly 4.3 million barrels per day.

Sailing through the strait will remain riskier and more costly than before the war. As a result, physical flows are still likely to recover gradually rather than immediately, even if prices respond more quickly to signs that a credible reopening deal is in place.— Oxford Economics, research note

Mine clearance alone is a significant obstacle. Tankers that have sat idle for three months need hull and propeller maintenance before they can move. Empty tankers must travel back to the Gulf from distant ports. Global petroleum inventories, which the U.S. Energy Information Administration places at their lowest point in more than 20 years, have continued to fall. In a research note, ClearView Energy Partners said a positive supply-demand balance may not materialize until late in the year, and that restoring stockpiles to pre-war levels could take anywhere from months to years.

An additional source of uncertainty emerged in Thursday's session when reports surfaced that the Trump administration was drawing up plans for a 90-day diesel export ban, sending ultra-low-sulfur diesel futures down roughly 5 percent in midday trading, Economy Middle East reported. The White House denied the report. Energy Secretary Chris Wright, however, had separately urged oil industry leaders during calls late Tuesday to brace for possible U.S. restrictions on diesel exports, before reversing course on Wednesday to say such a ban would not work — even as Trump expressed support for the idea. Analysts warned that restricting U.S. diesel exports could tighten global fuel supplies while doing little to reduce domestic prices.

U.S. crude inventories rose by 3 million barrels last week to 426.4 million barrels, the Energy Information Administration reported — a build significantly larger than expected — adding modest downward pressure on prices. Fuel inventories, however, declined during the same week.

According to AGBI, the International Energy Agency projects that oil production and exports from Gulf Cooperation Council countries will recover at a measured pace if the U.S.-Iran peace deal holds, with a substantial surplus potentially emerging in 2027. That timeline — 2027 — underscores how far markets remain from the pre-war normal, even as diplomats talk and prices tick down from their peaks.

Why it matters — The U.S.-Iran war has removed up to 13 million barrels a day of oil from global markets and pushed prices into triple digits; every signal from either side — diplomatic or military — now moves energy costs that affect fuel, food, and freight prices worldwide.

Sources differ on Diesel export ban: Trump administration preparing a 90-day diesel export ban (economymiddleeast.com (citing reports)) vs White House denied the report (economymiddleeast.com) vs Energy Secretary Wright told industry leaders to prepare for possible curbs (economymiddleeast.com (citing Bloomberg)) vs Wright said a diesel export ban would not work (economymiddleeast.com) vs Trump said he would support a diesel export ban (economymiddleeast.com)

Reported by reuters.com, economymiddleeast.com, jordannews.jo, nytimes.com, politico.com, agbi.com, qz.com, foreignpolicy.com