Crude oil prices tumbled roughly 4% on Wednesday after Iranian state television reported the existence of a draft U.S.-Iran agreement aimed at ending hostilities and reopening the Strait of Hormuz. Global benchmark Brent crude fell $3.94 to settle at $95.59 per barrel, while U.S. West Texas Intermediate (WTI) crude dropped $3.97 to $88.91 per barrel.
The Strait of Hormuz is a critical chokepoint for global energy supplies. According to the International Energy Agency, approximately 20 million barrels per day of crude and oil products transited the strait in 2025, representing nearly a quarter of the world's seaborne oil trade. Liquefied natural gas (LNG) shipments from Qatar and the United Arab Emirates also rely on this strategic waterway.
The sharp decline in oil prices came as traders shifted their focus from supply fears to the possibility of a diplomatic resolution. The IEA had earlier this month reported that reduced traffic through Hormuz had pushed total Gulf supply losses past 1 billion barrels, with over 14 million barrels per day of production shut in.
Iranian state TV reported that a draft memorandum of understanding, described as a preliminary negotiating text, could restore shipping through Hormuz to pre-war levels within a month. The report claimed the United States would lift its naval blockade of Iranian ships and pull its forces away from Iran, while Iran would manage commercial ship traffic jointly with Oman. The outlet emphasized that the draft is unofficial and not final.
Despite the market reaction, a finalized agreement remains uncertain. The White House dismissed the report as a "complete fabrication," and President Donald Trump stated the U.S. was "not satisfied" with negotiations. Iran's Ali Bagheri Kani also cautioned that nothing is final until all issues are resolved.
Crude futures dropped as traders saw a peace deal as more likely, triggering what Dennis Kissler, senior vice president of trading at BOK Financial, described as "heavy selling pressure." The losses erased all of Tuesday's Brent rally, which had been driven by new U.S. strikes in Iran.
Shipping signals remain mixed. On Wednesday, a COSCO products tanker moved through Hormuz, following two crude tankers the day before. However, typical daily crossings remain at about 11 vessels, far below the 125 to 140 per day before the war began on February 28. Security concerns persist, as a tanker crew was safe after reporting an external explosion off Oman on Tuesday. Iran called recent U.S. strikes in Hormozgan province a breach of a fragile ceasefire, while Washington described the strikes as defensive.
Meanwhile, the impact of high fuel costs is spreading to the aviation sector. IndiGo and Air India, which together hold about 90% of India's domestic air market, are cutting capacity for June and July. Sources told Reuters that IndiGo is slashing approximately 7% to 10% of its planned domestic flights, while Air India has cut 22%. Fuel accounts for up to 40% of airline costs, and Air India cited the "sustained impact" of high fuel prices for its pullback.
Lorie Logan, president of the Dallas Federal Reserve, highlighted the broader risk. She warned that if shipping through Hormuz does not return to normal soon, the world may have to cut oil and gas use more than before. "If the molecules aren't available, the world can't consume them," Logan said. Some producers maintain outlets near the strait, but these cannot match regular flows. The U.S. Energy Information Administration notes that Saudi Arabia and the UAE operate pipelines that bypass Hormuz, but most oil transiting the strait lacks a viable backup route.
Markets are now closely watching how quickly Hormuz can reopen. A signed accord may reduce the war premium in oil prices, but without a deal, crude, jet fuel, and shipping insurance costs remain at risk if violence resumes.
