Oil prices plunge as Iran war tensions ease amid tentative Hormuz reopening

Crude oil prices plunged sharply on Apr. 7 after US President Donald Trump announced a conditional 2-week ceasefire agreement with Iran, contingent on reopening the Strait of Hormuz and restoring safe passage for energy shipments. Both Brent and WTI crude oil fell towards $95/bbl, marking their largest single-day decline since 2020.

Under the agreement, Iran signaled willingness to halt attacks on shipping and allow transit through Hormuz while broader negotiations continue. The US also indicated it would assist in clearing a backlog of tankers and stabilizing maritime traffic.

Benchmark crude prices initially surged above $110/bbl in early April amid fears of prolonged supply disruption after Iran effectively restricted traffic through the strait—a corridor responsible for roughly 20% of global oil flows. The blockade, triggered by escalating US-Iran hostilities, caused tanker traffic to collapse and stranded millions of barrels of crude and refined products in the region.

Despite the price correction, analysts caution that supply disruptions and infrastructure damage will continue to constrain markets. The conflict has already impaired regional energy assets, including LNG infrastructure in Qatar, and forced producers across the Middle East to curtail output or delay exports.

The US Energy Information Administration (EIA) warned that fuel prices may remain elevated for months even if flows normalize, citing logistical bottlenecks, depleted inventories, and continued geopolitical uncertainty.

“In theory, the 10–13 million b/d of crude oil and product supply stranded behind the Strait should now be gradually released. Whether the pre-March status quo will be re-established depends entirely on whether the truce can be turned into a permanent peace during the negotiations in Pakistan,” said Tamas Varga, analyst, PVM Oil Associates.

“What appears evident, at least for now, is that the current quarter, the April–June period, will be the tightest, as the scarcity of available oil, both crude and refined products, precipitates a scramble for whatever volumes are available. Demand destruction, triggered by elevated oil prices, is then expected to emerge toward the end of the year.”

The geopolitical risk premium is likely to remain significantly higher than before the conflict; consequently, a return to sub-$70 levels is highly improbable, at least over the next year or two, he added.