Oil Prices Drop Over 2% Amid Unverified U.S.-Iran Deal Reports

Oil prices experienced a significant decline on Tuesday, dropping over 2% after an unverified report suggested that Qatar and Pakistan had proposed a 'middle ground' plan to the U.S. and Iran. This report indicated that the plan could potentially satisfy the demands of both nations, leading to a decrease in crude prices. Earlier in the day, crude oil had been trading near a five-month high, but concerns over renewed attacks on vessels and Houthi strikes on Saudi energy infrastructure contributed to the price drop.

As of 11:07 ET, Brent crude futures for December delivery fell by 2.3% to $106.99 per barrel, while U.S. West Texas Intermediate crude futures dropped 2.2% to $96.33 per barrel. The New Arab reported that the proposed deal involves around $6 billion in Iranian funds held in Qatari banks, which would serve as a partial response to Tehran's demands for the unfreezing of assets. Additionally, Iran is reportedly willing to allow secret visits by the International Atomic Energy Agency to its nuclear facilities as part of the negotiations.

Despite the initial optimism surrounding the potential agreement, analysts from Deutsche Bank noted that the earlier gains in oil prices were short-lived. The situation was further complicated when Iran's First Vice President stated that the country had 'no choice but to exercise sovereignty' over the Strait of Hormuz, raising alarms about possible disruptions in crude oil supply through this critical passage. Recent incidents involving attacks on vessels near Hormuz have already hampered oil flow in the region.

The Strait of Hormuz has been under significant strain since the onset of a joint U.S.-Israeli operation against Iran in late February. Although there were indications of a recovery in oil supplies last month, U.S. Energy Secretary Chris Wright mentioned that Gulf crude flows had returned to approximately 80% of pre-war levels, while shipments of refined products remained limited. Analysts from ANZ cautioned that the rebound in oil flows could be jeopardized by escalating attacks on ships in the Gulf.

In related developments, Iran's Islamic Revolutionary Guard Corps reported an incident where an oil tanker struck a naval mine and caught fire in the Strait of Hormuz, although this claim could not be independently verified. Concurrently, Iran-backed Houthis in Yemen have intensified their attacks on Saudi Arabia's energy and military infrastructure, targeting key facilities including an Aramco site in Yanbu and airports in Riyadh and Abha. This escalation comes as Saudi Arabia continues its military operations against Houthi-controlled territories in Yemen.