Oil falls to pre-war levels as Hormuz reopens

Middle East Conflict That Drove Oil Above $100 Eases as Strait of Hormuz Reopens

The Middle East crisis that sent Brent crude surging past $100 a barrel earlier this month and threatened to derail the global economy is now unwinding rapidly, with oil prices falling to pre-war levels as tanker traffic resumes through the Strait of Hormuz following a preliminary U.S.-Iran peace deal.

Brent crude settled near $75 a barrel on Thursday after a cargo ship was struck by an unidentified projectile near Oman, a reminder of lingering risks. But the broader trend has been a sharp reversal: prices have fallen more than 25% from their early June peak above $101, when the escalating conflict between the U.S., Israel, and Iran choked off one of the world’s most critical oil arteries.fortune

From Crisis to Recovery

The war, which began with U.S.-Israeli airstrikes on Iran on February 28, led to a near-total closure of the Strait of Hormuz — a waterway through which roughly 20% of global oil supplies flow. At its worst, daily vessel transits fell from a pre-war average of 130 to 140 ships to as few as five to ten, according to Frontline CEO Lars Barstad.cnbc

Goldman Sachs warned in April that another month of closure could push Brent above $100 for the remainder of 2026, with prices potentially averaging $120 per barrel in the third quarter. That scenario briefly materialized: Fortune reported Brent at $101.36 on June 3, while U.S. gasoline prices surged 32% from pre-war levels.nytimes

The Deal and Its Limits

A preliminary agreement signed between Washington and Tehran last week initiated a 60-day negotiation window and permitted the resumption of tanker traffic. U.S. Energy Secretary Chris Wright said approximately 20 million barrels passed through the strait in 24 hours, approaching pre-war volumes. Goldman subsequently cut its fourth-quarter Brent forecast to $80 from $90, while UBS also revised projections downward.aljazeera

Yet the recovery remains fragile. The main central route through Hormuz is still mined, forcing ships through narrower northern and southern passages. Iran attacked the cargo vessel struck Thursday near the strait, two U.S. officials told Reuters, prompting the United Nations maritime agency to halt its ship escort program. Deutsche Bank analysts noted that while “fears of stagflation have significantly lessened,” a full return to normal operations could take weeks due to mine clearance.reuters

Inflation Threat Recedes — For Now

The rapid decline in crude prices has eased fears that soaring energy costs would reignite inflation across advanced economies. The S&P 500 stabilized this week, and South Korea’s Kospi recovered from a 10% drop. J.P. Morgan now projects Brent averaging $86 in the third quarter and $80 in the fourth.reuters

But analysts caution that the situation remains precarious. Iran’s insistence on establishing toll authority over the strait, which legal experts say violates international maritime law, and unresolved questions about Tehran’s nuclear program could yet derail negotiations — and send prices surging once again.cnn