Oil prices fell sharply as markets reacted to reports that Iran could reopen the Strait of Hormuz within seven days if the United States eases military pressure and lifts its blockade on Iranian ports.

Reuters and Japan’s Kyodo News, citing an unnamed senior Iranian official, reported that Tehran had outlined conditions that could allow shipping through the strategically important waterway to resume. However, another senior Iranian official later denied the reports, leaving considerable uncertainty over whether a diplomatic breakthrough is actually taking shape.

The Strait of Hormuz has become a major focus for global markets after months of conflict severely disrupted shipping through the region. The waterway normally carries around 20% of global oil and liquefied natural gas supplies, making any potential reopening particularly significant for energy prices and global inflation.

Markets responded quickly to the possibility of easing tensions. Brent crude fell below $100 per barrel, dropping more than 2%, while WTI declined more than 3% to around $92. U.S. stock index futures were mixed as investors weighed the prospect of improved energy flows against the continuing geopolitical risks.

Diplomatic Hopes Meet Continued U.S. Pressure

The reports emerged as Washington continued to intensify economic pressure on Tehran. U.S. Treasury Secretary Scott Bessent said the administration was targeting Iran’s international financial and commercial links, warning that companies and institutions assisting Tehran could face restrictions on access to the U.S. dollar system.

The U.S. has also expanded sanctions against entities accused of facilitating Iranian business, reinforcing Washington’s broader effort to economically isolate Tehran.

This creates a complicated backdrop for negotiations. While the possibility of reopening Hormuz has raised hopes that tensions could ease, both sides continue to apply significant military and economic pressure.

Saudi Arabia Adds Another Layer of Risk

Regional tensions are also extending beyond the Strait of Hormuz.

The U.K. has reportedly agreed to support Saudi Arabia against attacks from Iranian-backed Houthi forces, including providing Royal Air Force air-to-air refuelling support for Saudi aircraft. British Prime Minister Andy Burnham said the arrangement would initially remain in place for several weeks and would be kept under review.

The move highlights growing concern over the security of Saudi Arabia and the region’s energy infrastructure. NATO Secretary-General Mark Rutte has also indicated that European allies could discuss additional support for Riyadh.

With Saudi Arabia playing a central role in global oil supply, further attacks on the kingdom or important export infrastructure could quickly restore the geopolitical risk premium that has recently supported crude prices.

Oil Markets Face a Two-Way Risk

For energy markets, the situation now presents two very different scenarios.

A credible agreement that restores regular shipping through the Strait of Hormuz could ease supply fears and place further downward pressure on oil prices. Improved shipping conditions would also reduce concerns over transportation costs, energy shortages and inflation.

On the other hand, negotiations remain uncertain, and the reported Iranian proposal has already been disputed by another government official. Continued fighting, tighter U.S. sanctions or further attacks on Saudi energy infrastructure could quickly reverse the recent decline in crude.

For now, oil markets are likely to remain highly sensitive to developments surrounding the Strait of Hormuz. After months of conflict, even early signs of diplomacy can trigger substantial price moves, but without a confirmed agreement, geopolitical risk remains firmly in focus.

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