Oil drops over 6% as Trump signals de-escalation; Iran warns no ‘litre of oil’ will leave Middle East

Oil prices fell sharply on Tuesday after US President Donald Trump predicted the war in the Middle East could end soon, easing fears of prolonged disruptions to global oil supplies. The statement comes amid Iran's warning that it would not allow oil to leave the Middle East if attacks continued.

Brent crude futures dropped $6.51, or 6.6%, to $92.45 a barrel, while US West Texas Intermediate (WTI) crude fell $6.12, or 6.5%, to $88.65 in early trading. Prices had surged past $100 a barrel on Monday, hitting session highs of $119.50 for Brent and $119.48 for WTI, their highest levels since mid-2022. The spike came as supply cuts by major Gulf producers during the expanding US-Israeli war with Iran raised fears of a major disruption in global energy supplies.

Markets later eased after Russian President Vladimir Putin spoke with Trump and shared proposals aimed at a quick settlement to the conflict, according to a Kremlin aide.

In an interview with CBS News, Trump said the war against Iran was “very complete” and that Washington was “very far ahead” of the initial four- to five-week timeframe he had predicted.

However, Iran’s Islamic Revolutionary Guards Corps (IRGC) warned that it would not allow “one litre of oil” to leave the Middle East if US and Israeli attacks continued. “We are the ones who will determine the end of the war,” an IRGC spokesperson said, according to Iranian state media. But those comments did not lift prices, which were also under pressure because Trump is considering easing oil sanctions on Russia and releasing emergency crude stockpiles as part of a package of options aimed at curbing spiking global oil prices amid the Iran conflict, according to multiple sources.

Trump has warned that the United States would strike Iran much harder if it attempted to block tanker traffic through the Strait of Hormuz, which carries about one-fifth of the world’s oil supply. “If Iran does anything that stops the flow of oil within the Strait of Hormuz, they will be hit by the United States twenty times harder,” Trump said in a post on Truth Social. The war has already effectively shut the Strait of Hormuz, leaving tankers unable to sail for more than a week and forcing producers to halt pumping as storage facilities fill.

Meanwhile, Gulf producers have begun cutting output as the conflict disrupts shipping routes. Iraq has reduced production at its main southern oilfields by about 70% to 1.3 million barrels per day, while Kuwait Petroleum Corporation has also begun lowering output and declared force majeure. Saudi Arabia has also started trimming production, according to industry sources.

The conflict has already severely disrupted tanker traffic through the Strait of Hormuz, effectively halting shipments for more than a week and forcing producers to reduce output as storage facilities fill up.
(With Reuters inputs.)