Oil prices dipped in early Asian trade on Tuesday as traders weighed conflicting signals from U.S.-Iran peace talks, with a fragile ceasefire set to expire later in the day.
U.S. Vice President JD Vance will head the American delegation to Pakistan for what might become the second round of discussions.
However, Iranian officials appear far from committed to further engagement. “We do not accept negotiations under the shadow of threats, and in the past two weeks, we have prepared to reveal new cards on the battlefield,” said Mohammad Bagher Ghalibaf, speaker of Iran’s parliament, in a post on X.
President Donald Trump added to the tension, renewing threats of massive military action if no agreement materialises by evening. He warned that “lots of bombs will start going off.” The stark language follows Sunday’s U.S. interception of an Iranian tanker, reinforcing a blockade on key Iranian ports and prompting some oil cargoes to divert via alternative routes such as the UAE’s Fujairah hub.
In the markets, West Texas Intermediate futures for May delivery declined 1.51 per cent to $88.26 per barrel, while the Brent crude benchmark for June slipped 0.68 per cent to $94.87 per barrel. Both had surged on Monday, with WTI gaining 7 per cent and Brent 5 per cent, driven by worries over the Strait of Hormuz.
Trump’s messaging has veered between hawkish warnings and diplomatic overtures, intensifying volatility in an already fraught conflict. Analysts at Rystad Energy report that Hormuz risks have prompted them to raise their 2026 oil price outlook by $5 to $8 per barrel. Sustained prices above $100 could unlock up to 2.1 million barrels per day from South American producers, including Brazil and Guyana.
“South America is now positioned as the world’s most consequential source of incremental supply,” noted Radhika Bansal, the firm’s senior vice president. “The Middle East conflict has done more than spike oil prices. It has exposed how dangerously concentrated global supply chains are around the Strait of Hormuz,” she added.
OPEC+ maintains 5.5 million barrels per day of spare capacity, per Platts sources, which might soften any shock. Yet the International Energy Agency highlights potential refining strains if Iran’s exports, now at 1.5 million barrels per day, cease entirely. Energy stocks fell around 2 per cent pre-market, signalling wider ripples for fuels and chemicals.
As the deadline looms, a deal could ease prices, but failure risks a squeeze reminiscent of the 2022 Ukraine war.