Crude oil prices fell more than 4% Sunday to their lowest levels in over three months after the U.S. and Iran agreed to a ceasefire extension that could lead to the reopening of the Strait of Hormuz. Brent, the global benchmark, slid 3.6% to $84.21 per barrel, while WTI, the U.S. reference, dropped over 4% to $81.38. Prices initially fell more steeply before reversing part of the decline.
Why the Strait of Hormuz Matters
Severe restrictions on oil traffic through the strait since the conflict began in late February created an energy shock that has weighed on the global economy. The waterway handles about a fifth of the global oil trade, and the apparent agreement could greatly expand tanker traffic through the narrow channel. Sunday's drop followed declines on Friday, when reports first surfaced that an agreement was imminent.
A Diplomatic Breakthrough
According to Axios, the memorandum of understanding would mark the biggest diplomatic breakthrough of the war. The deal buys time to settle the hardest questions over Iran's nuclear program, while reopening the export route that producers shut when the strait was effectively closed.
What It Means for Gas Prices
The oil price spike pushed U.S. gasoline to its highest levels since 2022. Average pump prices reached roughly $4.56 per gallon in May before retreating to about $4.07, per AAA — still more than $1 above pre-war levels. Crude is the largest variable in retail pump prices, so prices will likely recede further if oil continues to fall. Affordability is front and center in the midterm election battles, adding political stakes to the trend.
What's Next
The disrupted market will take months to fully untangle. While the deal could enable a major increase in tanker transit, it is not clear how quickly ship owners and operators will have the confidence to move through the waterway. Even with the strait fully open, Persian Gulf producers that cut output when the main export route closed will need time to revive production.