Oil prices climbed on Tuesday after a media report indicated that U.S. forces had shot down an Iranian drone that had approached a U.S. navy aircraft carrier, adding near-term geopolitical risk back into energy markets.
Earlier in the session prices had stabilised following sharp losses the previous day, with traders still digesting two significant developments: a bilateral trade agreement between the U.S. and India and signs of easing tensions between the U.S. and Iran. At 12:26 ET (17:26 GMT), Brent crude futures for April traded up 1.3% at $67.16 a barrel, while West Texas Intermediate (WTI) futures rose 1.5% to $63.09 a barrel.
Both benchmarks had been under pressure earlier in the day after plunging more than 4% on Monday, moves that followed comments from U.S. President Donald Trump that Iran was "seriously talking" with Washington - comments that signalled a potential de-escalation in relations with the OPEC member.
U.S.-India trade pact and oil market implications
Market attention has turned to a long-awaited trade deal between the United States and India. Under the terms reported, U.S. tariffs on Indian goods would be cut to 18% from 50% in return for India agreeing to halt purchases of Russian oil and to lower trade barriers. Analysts at ING warned that, if implemented, the deal could increase the volume of unsold Russian crude at sea.
"If we do see this happen, it will only lead to a further increase in the amount of Russian oil floating at sea," ING analysts said in a note. "This further pressures the Urals discount to attract buyers. A lack of buyers means Russia would ultimately be forced to reduce output, tightening up the oil market."
The ING observation links changes in trade policy directly to flows of Russian crude and the pricing dynamics of grades such as Urals, highlighting a transmission channel from tariff and trade arrangements into physical supply balances.
U.S.-Iran nuclear talks and geopolitical risk premium
Reports indicate that the United States and Iran will resume talks over Iran's nuclear programme on Friday in Turkey. Those discussions follow repeated U.S. warnings that Iran should accept a deal and include talk of potential military action if no agreement is reached. News that talks would be held helped remove some of the risk premium that had supported oil prices, as concerns about a broader regional conflict eased.
Still, it remains uncertain whether these Friday talks will deliver any major de-escalation. Earlier negotiations over Iran's nuclear ambitions have produced limited outcomes, and markets have taken that history into account when pricing risk. Previously, fears of a broader conflict had been a key underpinning for oil, particularly after U.S. deployments of warships to the Middle East and public warnings about potential strikes on Iran.
Currency movements and commodity price pressure
Movements in the U.S. dollar also affected oil. The dollar had weighed on oil prices late last week and on Monday after gaining on the news of a nomination to a key economic post. The nominee was viewed as less dovish than markets had expected. While still expected to preside over further interest rate cuts by the Federal Reserve, the nominee was also anticipated to restrain the central bank's asset purchases, thereby keeping policy conditions less loose than some had hoped. That helped the dollar rebound and pressured commodity prices broadly.
On Tuesday, however, the greenback halted its advance, removing some of the downward pressure on oil and allowing futures to edge higher.
Outlook and market context
In the near term, oil markets are responding to a combination of geopolitical headlines, trade-policy shifts and currency moves. The media report of a U.S. engagement with an Iranian drone added upward momentum to prices that had been pared back by recent signs of diplomatic engagement and trade liberalisation between major economies. How these factors interact - including whether the U.S.-India trade deal is implemented as reported and whether the U.S.-Iran talks produce substantive progress - will be central to market direction in coming sessions.
Given the mix of drivers, traders and market participants continue to monitor both geopolitical developments and macro-level indicators, including currency trends and any further official comments that could influence perceptions of supply risk or demand prospects.