Oil Prices Plunge 5% on US-Iran Peace Hopes, But Analysts Warn the Calm Is Deceptive

Global crude prices suffered one of their sharpest single-day drops in weeks on Monday after diplomatic signals suggested the US and Iran were inching toward a deal to end the months-long conflict that has choked off the Strait of Hormuz. Both Brent and WTI benchmarks fell about 5%, briefly breaking below key psychological thresholds as traders rushed to price in a potential restoration of normal oil flows . But beneath the market's relief rally, the physical supply picture remains severely strained, and analysts warn the current price calm could reverse violently if the fragile negotiations collapse.

What triggered Monday's sharp sell-off

The immediate catalyst was a weekend shift in tone from President Trump, who declared that a deal with Iran had been "largely negotiated" and that an announcement was imminent . The remarks raised concrete expectations that a ceasefire framework would reopen the Strait of Hormuz, the narrow channel that handled roughly one-fifth of global oil and LNG shipments before the war .

Traders reacted swiftly. WTI crude futures tumbled nearly 6% to below $91 a barrel, while Brent fell 4.8–5.9% to the $97–$98.50 range, touching two-week lows . The sell-off was amplified by profit-taking: many participants had been sitting on large positions built up since the conflict erupted in late February 2026, and Monday offered a natural moment to lock in gains .

Inside the emerging US-Iran memorandum of understanding

The contours of the proposed arrangement, first reported by Axios citing a US official, center on a 60-day memorandum of understanding (MOU) that could be extended by mutual consent . Key terms on the table include:

• Ceasefire extension: A 60-day halt to hostilities between the US, Israel, and Iran, creating a window for broader negotiations .
• Strait of Hormuz reopening: Iran would clear mines from the strait and restore shipping traffic to pre-war levels within 30 days. During the ceasefire, transit would be toll-free .
• Iranian oil exports: The US would lift naval blockades and permit Iran to freely sell oil during the ceasefire period, offering Tehran a critical economic lifeline .
• Separate nuclear negotiations: Talks on curbing Iran’s nuclear program would be held as a distinct phase after the MOU is signed .

Crucially, these terms remain contested. Iranian media outlets have pushed back on US characterizations, insisting that Tehran will retain control over the Strait of Hormuz and that nuclear issues are not part of the initial MOU . Those disagreements underscore how far the two sides remain from a signed, enforceable agreement.

Why analysts call the oil market calm ‘deceptive’

Even if a deal is finalized, energy analysts point to several factors that make the current price dip fragile and potentially short-lived.

A structural supply deficit. The Iran war has already flipped the global oil market from an expected surplus to a significant deficit. A Reuters poll of eight analysts in April projected that demand would outpace supply by 750,000 barrels per day on average in 2026, driven by an estimated production loss of 2.13 million barrels per day across the year . Persian Gulf producers have been forced to cut output by roughly 6% due to the Hormuz closure , and that physical shortfall persists regardless of diplomatic headlines.

Slow normalization of flows. Analysts caution that even if a peace deal is signed, a return to normal oil flows through the Strait of Hormuz would likely take months. Damaged energy infrastructure, insurance hurdles, and the logistics of clearing mines and rerouting tankers mean the supply shock will not unwind overnight . As one top oil analyst warned in April, “the next two months is going to be an ongoing, absolute disaster even if you open the straits tomorrow, because it’s just locked in” .

Headline-driven volatility. The oil market has whipsawed repeatedly since the conflict began, with each twist in US-Iran talks producing sharp price swings . Analysts at ING and elsewhere have described recent stability as a “deceptive calm,” noting that unresolved disagreements over Iran’s uranium stockpile and Hormuz control continue to inject uncertainty into every trading session .

A deal that isn’t signed. For all the weekend optimism, Trump himself cautioned that “the deal with Iran will either be a great and meaningful one, or there will be no deal,” while Iranian officials continue to send mixed signals on progress . Analysts at Al Jazeera have characterized the proposed MOU as a “time-buying ceasefire that extends negotiations over sanctions, oil sales, nuclear issues and control of the strait, rather than a real deal” .

In short, Monday’s price plunge reflects genuine diplomatic progress—but it prices in an outcome that remains far from certain. Until tankers are actually moving freely through the Strait of Hormuz, the oil market will remain balanced on a knife’s edge, with any breakdown in talks capable of sending prices sharply higher within hours.