Brent falls 4.8% to three-month low as US-Iran deal reopens Hormuz

Oil prices fell sharply on Monday after US President Donald Trump and Iran's deputy foreign minister announced an initial deal to reopen the Strait of Hormuz. Brent crude futures dropped $4.16, or 4.8%, to $83.17 a barrel by 1315 GMT, while US West Texas Intermediate (WTI) fell $4.39, or 5.2%, to $80.49. Both contracts hit their lowest points since 10 March, having already shed more than 3% on Friday.

The move follows news that the US and Iran plan to sign a memorandum of understanding in Switzerland on Friday, with Pakistan acting as mediator. Trump said the strait would reopen without tolls and that the US naval blockade of Iranian ports would cease. According to Iran's Mehr news agency, the draft agreement reopens the Strait of Hormuz within 30 days under Iranian supervision. The Financial Times reported the deal as the trigger for the sell-off, with the chokepoint carrying a fifth of the world's oil and liquefied natural gas (LNG) supplies.

What this means for UK buyers

The chart below shows Brent over the last six months, against which Monday's drop to a three-month low can be read.

The immediate read-through is downward pressure on oil-linked and gas contracts, but the floor is moving up, not back to pre-crisis levels. Bloomberg noted that traders are watching how quickly Middle Eastern producers can restart output and how fast ships return to the region. Several analysts expect a higher baseline going forward.

Key figures and forecasts to weigh:

• Brent front-month: $83.17/bbl, down 4.8% on the day
• WTI front-month: $80.49/bbl, down 5.2%
• Hormuz pre-crisis throughput: 20 million barrels per day
• Reopening window: within 30 days under the draft terms
• Full traffic recovery: realistically by 2027 on ICIS estimates

The recovery will not be instant. Tamas Varga of PVM Oil Associates said it will take time for traffic to return to the pre-crisis level of 20 million barrels per day, with full resumption ranging from weeks to months. Saxo Bank's Ole Hansen expects the Brent floor to rise from the previous $60 to a $75 to $80 range. David Jorbenaze of ICIS, quoted by Reuters, predicted a 'partial recovery in traffic within weeks of a credible deal and meaningful commercial normalization within four to six months', with full pre-conflict levels not realistic until 2027.

For buyers with renewals in the next quarter, the drop creates a window, but the structural floor is higher than it was before the conflict. UBS analyst Giovanni Staunovo flagged that lower inventories, a gradual production restart, and the need to refill strategic reserves should support prices longer term. Watch the Friday signing in Switzerland: a clean memorandum holds the curve down, while any incident in the 60-day ceasefire window would reverse Monday's fall quickly.