Oil Prices Fall Back to Pre-Iran War Levels as Strait of Hormuz Traffic Resumes

Global oil prices have dropped to their lowest levels since before the U.S.-Israeli war against Iran began in late February, as easing tensions in the Strait of Hormuz and progress on a negotiated settlement convince traders that the worst of the supply disruption is finally over. U.S. benchmark West Texas Intermediate (WTI) futures fell 3.9% to settle at $70.34 per barrel on Wednesday, briefly dipping to $69.63 during the session — the first time the contract has traded below $70 since March 2. Brent crude, the international benchmark, fell 4.3% to settle at $73.74 per barrel, its lowest close since before the conflict began on February 28. A Sharp Reversal From the War's Peak The decline marks a dramatic round-trip for energy markets. Brent crude initially spiked 10-13% to roughly $80-82 a barrel in the war's opening days, and some forecasts during the worst of the fighting warned prices could climb toward $100 a barrel if disruptions to the Strait of Hormuz persisted. At one point, oil did push past the $100 mark and jet fuel prices more than doubled in some markets, as Iran's effective closure of the strait disrupted roughly 20% of the world's oil supply and prompted the International Energy Agency to call it the "largest supply disruption in the history of the global oil market." That disruption rippled across the global economy for months. Bangladesh, Pakistan, and Vietnam were among the hardest-hit importing nations. The Philippine peso fell to a record low. Bahrain needed a multibillion-dollar currency swap from the UAE to shore up its finances after the strait crisis hit its oil and aluminum exports. Even countries far from the conflict, including Australia and New Zealand, activated national fuel security plans and released strategic petroleum reserves in response. What Changed The turnaround traces back to a memorandum of understanding signed by the U.S. and Iran on June 17, which set out a 60-day window for negotiations over Tehran's nuclear program and other measures to formally end the war. Representatives from both sides met for follow-up talks in Switzerland over the past weekend, and the U.S. has since partially lifted sanctions on Iranian oil exports as part of the de-escalation process. Shipping data backs up the market's optimism. According to maritime intelligence firm Kpler, vessel traffic through the Strait of Hormuz has risen significantly since the memorandum was signed, with ships now carrying crude oil, liquefied natural gas, fertilizer, and other goods through the waterway again. The U.S. and Iran have also set up a direct communication channel, brokered with help from Qatar and Pakistan, specifically aimed at preventing misunderstandings and ensuring safe passage for commercial vessels through the strait. President Trump added a further data point Wednesday, posting that Iran had informed the U.S. there would be no tolls, insurance surcharges, or other charges placed on ships transiting the strait — a detail likely to further ease shipping costs and insurance premiums that had spiked during the conflict. Markets React Beyond Oil The drop in crude prices rippled into bond markets the same day. The yield on the 10-year U.S. Treasury note fell more than 8 basis points to 4.406%, as investors grew more confident that the inflationary pressure from the energy spike would prove temporary rather than lasting. Ross Pamphilon, chief investment officer of fixed income at Impax Asset Management, said the prevailing view among investors has been that "the energy spike was always likely to prove transitory rather than structural," adding that markets had likely overestimated how persistent the resulting inflation impulse would be. Thursday's release of the Federal Reserve's preferred inflation gauge, the personal consumption expenditures price index, will offer one of the first concrete tests of that thesis. Pump Prices Haven't Caught Up Yet Despite crude's sharp slide, drivers haven't seen the same relief at the pump. The average U.S. price for regular gasoline has eased to around $3.93 a gallon, down from a high near $4 a gallon in April — the most expensive gas had been since 2022 — but it remains well above pre-war levels. That lag has drawn political attention. President Trump on Wednesday ordered an investigation into major energy companies, including Shell and ExxonMobil, accusing them of price gouging by not passing crude's decline through to consumers quickly enough. "Oil prices have come down so much and we are not seeing anything at the pump by comparison the way they should be," Trump told reporters. The American Petroleum Institute pushed back on the characterization, noting that retail fuel prices "don't move in lockstep with crude oil" due to refining, distribution, and regional market factors. British energy firms have faced similar accusations of slow-moving pump prices since the war began. What It Means Going Forward For now, the combination of resumed shipping through the Strait of Hormuz, progress in U.S.-Iran negotiations, and a market that's pricing in continued de-escalation has pushed oil back to levels not seen in roughly four months. Whether that holds depends heavily on the outcome of the 60-day negotiating window set by the June 17 memorandum — any breakdown in talks, renewed military action, or fresh disruption to shipping could quickly reverse the recent declines. In the meantime, consumers are likely to see gradual relief at the pump, even if it continues to lag behind the speed of crude's drop.