Oil prices fell sharply on Tuesday as markets reacted to comments suggesting the Iran conflict might be resolved soon, cutting expectations of extended interruptions to global crude flows. At 12:58 p.m. EDT (1658 GMT), Brent futures were down $12.46, or 12.6%, at $86.50 a barrel, while U.S. West Texas Intermediate crude lost $12.24, or 12.9%, trading at $82.53.
Both benchmarks had rocketed to above $119 a barrel on Monday, reaching their highest points since June 2022 after Saudi Arabia and other producers trimmed supply and stoked fears of major shortages. Prices retreated late on Monday and again on Tuesday following reports that U.S. President Donald Trump and Russian President Vladimir Putin had spoken and exchanged proposals aimed at a rapid settlement of the war, according to a Kremlin aide.
In a separate interview on CBS News aired on Monday, Trump said he believed the war against Iran was "very complete" and that Washington was "very far ahead" of his initial four- to five-week projected timeframe for the conflict. Those remarks contributed to a reassessment of how long any supply disruption might persist.
"Clearly Trump’s comments about a short-lived war have calmed markets. While there was an overreaction to the upside yesterday, we think there is an overreaction to the downside today," said Suvro Sarkar, energy sector team lead at DBS Bank.
Israel’s foreign minister added that Israel is not seeking an endless war with Iran and would coordinate with the United States on the timing to end the fighting.
Supply restoration will not be instantaneous, analysts warn
Even if the conflict were to end quickly, bringing oil supplies back to pre-conflict levels would not be immediate, Simon Flowers, chairman and chief analyst at Wood Mackenzie, cautioned. "When the conflict ends, cranking up the supply chain won’t be swift," he said. Flowers noted that while barrels in storage at refineries or in port could move relatively fast, wells that have been shut in for a prolonged period could take weeks or longer to resume full production.
On Tuesday, Iran’s Islamic Revolutionary Guard Corps warned that Tehran would not allow "one litre of oil" to be exported from the region if U.S. and Israeli attacks continued, state media reported.
At the same time, reports emerged that the U.S. administration is weighing possible steps to alleviate global price pressure, including easing oil sanctions on Russia tied to the war in Ukraine and releasing emergency crude stockpiles, according to multiple sources.
"Discussions around easing sanctions on Russian oil, comments from Donald Trump hinting that the conflict could eventually de-escalate, and the possibility of G7 (Group of Seven) countries tapping strategic oil reserves all pointed to the same message - that oil barrels will somehow continue to reach the market," said Priyanka Sachdeva, an analyst at Phillip Nova.
G7 energy ministers on Tuesday did not agree to release strategic reserves; instead they requested the International Energy Agency assess the situation before taking action.
Conflict and regional disruptions continue to pose upside risk
Despite market moves that priced in a potential near-term de-escalation, the war continued to generate concrete disruptions. The U.S. and Israel carried out what both the Pentagon and on-the-ground Iranian sources described as the most intense airstrikes of the conflict on Tuesday, even as markets increasingly bet that President Trump would seek to curtail the fighting.
Saudi Aramco warned of "catastrophic consequences" for global oil markets if shipping through the Strait of Hormuz remained disrupted by the war. Consultancy IIR reported that nearly 1.9 million barrels per day of crude refining capacity in the Gulf has been shut in due to the U.S.-Israeli campaign against Iran.
JPMorgan, in a note, said policy measures could have limited impact on oil prices unless safe passage through the Strait of Hormuz is assured, given what it described as potential losses of up to 12 million barrels per day over the next two weeks.
Adding to supply-side concerns, Abu Dhabi state oil company ADNOC shut its Ruwais refinery after a fire broke out at a facility within the complex following a drone strike, a source said on Tuesday.
Given how fluid the situation remains, Goldman Sachs said it was not altering its oil price forecast, leaving Brent at $66 per barrel for the fourth quarter and WTI at $62 per barrel.
Market context and commentary
The rapid reversal from Monday’s surge to Tuesday’s steep drop underscores how sensitive oil markets are to signals about the trajectory of the Iran war and to policy options that could augment supply. Comments suggesting a shorter conflict or possible policy actions to boost crude availability led market participants to reassess near-term supply risks, prompting the dramatic sell-off.
At the same time, physical disruptions such as refinery outages, shut-in Gulf refining capacity, and threats to maritime routes mean the potential for renewed price spikes remains, should hostilities intensify or shipping routes be further threatened.
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