Oil drops sharply as US-Iran Hormuz deal nears

Oil prices have fallen sharply over the past week as growing optimism over a potential US-Iran agreement to reopen the Strait of Hormuz has driven traders to unwind risk premiums built up during months of conflict. Brent crude has dropped more than 12% in a week, while West Texas Intermediate has shed more than 11%, according to Reuters.newsukraine.rbc

The sell-off accelerated on Tuesday, August 4, after US Treasury Secretary Scott Bessent told CNBC's "Squawk Box" that the United States and Iran could reach an agreement "today or tomorrow" to reopen the strait and "move towards a more normalized position in this conflict". WTI crude fell as much as 5% to $76.32 a barrel, while Brent slipped below $80 for the first time since mid-July.benzinga+1

A Deal Takes Shape

Bessent said the proposed agreement would ensure "freedom of movement" through the waterway, indicating that Iran would not be permitted to impose transit tolls. He suggested oil prices could fall further once full traffic resumes, telling Fox News in a prior appearance that the market remains "in deficit" but supply is being stabilized.foxnews+1

Axios reported that the United States intends to announce a temporary 60-day arrangement, brokered between Oman and Iran, that would reopen the strait under conditions designed to satisfy some of Tehran's demands regarding control of the waterway. The deal would build on a memorandum of understanding signed electronically by both sides in early July, which collapsed weeks later when the ceasefire broke down and Iran resumed attacks on shipping.facebook+2

Uncertainty Remains

Despite the steep decline, prices briefly jumped on Monday, August 3, after doubts surfaced over whether a diplomatic resolution could hold. Brent fell more than 7% in early trading that day before recovering somewhat to around $83.51, according to The National News. President Trump, speaking aboard Air Force One, said a new round of negotiations would begin Monday and that all straits closed during the war "will soon be reopened" — either through talks or a military strike.thenationalnews+1

Market Implications

Analysts warned the rally could reverse quickly if diplomacy fails. "If diplomatic efforts fail and physical supply is ultimately affected, the current pullback could prove short-lived, with tighter inventories amplifying the impact of any future supply shock," said Priyanka Sachdeva, head of market research at Phillip Nova. Before the war began, roughly 20% of the world's oil and liquefied natural gas passed through the Strait of Hormuz.newsukraine.rbc

Mike Bell, head of market strategy at RBC BlueBay Royal Bank of Canada ↗ 1.48%, expressed caution on Bloomberg Television, noting that falling prices could prove premature given the fragility of prior agreements.bloomberg