Oil prices plunged on Monday after the United States and Iran paused their two-week exchange of military strikes, with Brent crude sinking more than 6% to briefly trade below $90 a barrel. The retreat from last week’s peak above $100 marked the sharpest single-session decline since the conflict erupted in February, as markets seized on the first tangible sign of de-escalation in the Strait of Hormuz.

The pause followed 13 consecutive nights of US bombardment of Iranian positions, halted after President Donald Trump’s advisers warned that the campaign had exhausted its target list and risked depleting munitions. Washington’s UN envoy said the president was “giving talks some space,” while Tehran announced it would suspend retaliatory strikes on regional neighbours. Mediation efforts by Oman and Pakistan, with Chinese backing, focused on a framework for reopening the strait, through which a fifth of the world’s oil normally transits.

Despite the diplomatic overtures, shipping data showed fewer than 10 commodity vessels a day crossing Hormuz over the weekend, and traffic through the Bab el-Mandeb strait fell after Yemen’s Iran-backed Houthis attacked Saudi oil infrastructure. Analysts in London cautioned that the price drop reflected a reduction in the geopolitical risk premium rather than any restoration of supply, noting that both chokepoints remain effectively disrupted. The Houthi threat to Red Sea shipping has compounded the squeeze, forcing Saudi Arabia to seek alternative export routes.

The oil surge had stoked inflation fears, pushing US petrol prices to $4.11 a gallon and prompting traders to price in a 36% chance of a Federal Reserve rate hike. Central banks in Frankfurt and London, which had been expected to hold rates steady, now face a delicate balance between easing price pressures and the risk of renewed energy shocks. The next factual milestone is the Federal Reserve’s policy decision on Wednesday, which will be scrutinised for any shift in language on inflation risks, while the fate of the Oman-mediated talks on Hormuz will determine whether the price retreat endures.