The markets are turning the tables with a sharp drop prices as geopolitical tension in the Middle East following the U.S.–Iran talks and expectations for an increase in oil supply are growing.

In an environment of heightened volatility and intense upheaval in international energy markets, Monday’s session marked a sudden shift in investor sentiment, with crude oil crude oil posting sharp losses following the temporary de-escalation of geopolitical tensions in the Middle East and the first positive signals from diplomatic contacts between the U.S. and Iran, a development that immediately reshaped expectations regarding global supply and brought back into focus the possibility of increased oil flows to international markets.

On Monday, crude oil prices recorded their sharpest daily decline in recent weeks, as investors reassessed the risks to global supply following the first positive signals from the U.S. – Iran talks in Switzerland and the maintenance of shipping traffic through the Strait of Hormuz.

Fluctuations

Brent crude fell by 3.86%, losing $3.11 to settle at $77.46 per barrel. Earlier in the session, it had reached as high as $82.30, as markets reacted to new threats by U.S. President Donald Trump to resume military operations against Iran, as well as to Tehran’s announcement that it had once again closed the Strait of Hormuz.

Consequently, U.S. WTI crude oil fell by $2.07 to $74.53 per barrel ahead of the July contract’s expiration. The most active August contract lost 3.27%, falling to $73.37.

Positive signals from the talks in Switzerland

The shift in market sentiment came after statements by U.S. Vice President Jay D. Vance, who reported that progress had been made in the talks with Iran. Meanwhile, mediators confirmed that the first round of talks between high-level officials from both countries in Switzerland had concluded.

The negotiations began on Sunday, based on the memorandum of understanding agreed upon last week with the aim of extending the fragile ceasefire in effect since April for at least another 60 days.

Meanwhile, the U.S. government took another step toward de-escalation by once again authorizing the sale of Iranian oil. The general license announced by the U.S. Treasury Department allows for the trade of crude oil, petrochemicals, and other petroleum products of Iranian origin until August 21.

However, Tehran made it clear that its nuclear program was not discussed during Sunday’s talks, nor were any new commitments made. Iranian Foreign Ministry spokesman Esmail Baghai told the official IRNA news agency that the issue remains outside the scope of the current negotiations.

Barrels Return to the Market

Analysts believe the market is reacting primarily to the prospect of Iranian crude returning to international markets.

UBS analyst Giovanni Staunovo noted that Iran has resumed oil exports that had been suspended earlier this month due to the U.S. naval blockade.

“The release of these volumes translates into additional supply for the market,” he said.

Meanwhile, ship-tracking data showed that two tankers carrying nearly 2 million barrels of crude oil passed through the Strait of Hormuz on Monday, a sign that traffic is returning to normal following the decline in traffic recorded on Sunday due to concerns about the safety of the passage.

At the same time, the United Arab Emirates, Kuwait, and Iraq have increased oil offers to their customers over the past week, in an effort to boost cargo availability.

The Challenges of Recovery

Despite early signs of normalization, analysts point out that a full restoration of supply will not be an easy task.

According to data from the JODI initiative, Saudi Arabia’s crude oil exports fell for the second consecutive month in April, hitting a record low of 3.99 million barrels per day, compared to 4.97 million barrels in March.

Meanwhile, Iraq plans to gradually increase its production to between 4.2 and 4.3 million barrels per day, according to the country’s Deputy Oil Minister.

ANZ estimates that between 2 and 3 million barrels per day could return to the market during the first four weeks. However, it warns that the recovery process will remain complex and dependent on stability in the region.

The bank estimates that an additional 2 to 3.5 million barrels per day could return to the market in the third quarter of 2026, while 1 to 2 million barrels may have been permanently or semi-permanently lost to the market.

“The initial benefits will come mainly from improvements in the supply chain and maritime transport, rather than from production itself,” ANZ notes, adding that a full restoration of production capacity is unlikely to be achieved by 2026.