Recent discussions between the US and Iran in Switzerland, aimed at a permanent peace deal and the reopening of the Strait of Hormuz, have caused fluctuations in oil markets. An interim deal last week initially led to a slump in crude futures, with some traders betting on an oil glut. Before the US attacks on Iran, a market structure known as contango was observed, where near-term prices were below later futures. However, after the attacks, prompt prices surged due to supply shortage concerns. For example, in late April, August West Texas Intermediate crude futures briefly jumped over $5 a barrel above the September contract, which in turn was $4 above October.
The situation grew more complex as US President Donald Trump threatened new strikes if Hezbollah continued attacking Israel, and Iran announced it had again closed the Strait of Hormuz. Despite Iran's announcement, US Central Command reported increased commercial ship traffic, with 55 merchant ships transiting cargo and over 17 million barrels of oil. Energy Secretary Chris Wright stated the US was still escorting ships and demonstrating its ability to transit the strait "with or without" Iran. The US-Iran memorandum involved Washington lifting a naval blockade and waiving sanctions that blocked Iranian crude sales, while Iran pledged to reopen Hormuz, a conduit for about a fifth of the world's oil and gas supplies. However, Tehran warned it would require ships to have its permission and mandatory insurance, a condition balked at by the US, Europe, and Gulf Arab states.
Following Trump's threats and Iran's announcement on Hormuz, oil prices rose, with Brent crude climbing as much as 2.2% to $82.30 a barrel, and West Texas Intermediate nearing $77. Iranian media initially reported that Iran halted talks over Trump's threat, but officials familiar with the matter stated talks were continuing. The discussions, held in Switzerland with Pakistan and Qatar as mediators, included deconfliction mechanisms for Hormuz and enforcing a ceasefire between Israel and Hezbollah in southern Lebanon. Iran's semi-official ISNA news agency indicated that a "comprehensive ceasefire" in Lebanon, including an Israeli withdrawal, and the fate of billions of dollars in frozen Iranian assets overseas, were key topics.
The talks, however, began with difficulties. Iran, arguing that the US failed to meet its commitment to halt fighting in Lebanon, stated that the talks would not cover substantive issues like Iran's nuclear program. This stance contrasted with the memorandum's provision for 60 days of talks on issues such as curbing Iran's nuclear program in exchange for lifting international sanctions. Iran expects initial economic benefits, such as sanctions waivers and unfreezing of blocked assets, before these issues are resolved. Trump agreed to the memorandum to avert a global economic depression from high oil prices caused by previous strait closures, with oil prices having tumbled over the past week to levels unseen since the war started on February 28.
