Oil prices fell sharply on Sunday and Monday as President Trump signalled progress toward a peace agreement with Iran that could reopen the Strait of Hormuz, where shipping traffic has virtually halted since US and Israeli-led strikes against Iran began on 28 February 2026. Trump said on Saturday that the two countries had "largely negotiated" a memorandum of understanding on a peace deal [Source: Business Recorder]. A day later, he posted on social media that negotiations were proceeding in an "orderly and constructive manner" but instructed officials "not to rush into a deal" [Source: Al Jazeera], tempering the initial optimism. US Secretary of State Marco Rubio added that the US will either reach a good agreement with Iran or address the situation "another way" [Source: CNBC/Reuters]. US officials also told reporters on Sunday that negotiations on precise deal language were ongoing and that final approval from both sides could take several more days [Source: Bloomberg].

Brent crude futures for July fell more than 5% on Sunday following Trump's initial comments, standing at $97.94 a barrel as of 04:00 GMT on 25 May, down approximately 9% from a month earlier. WTI crude for July delivery dropped 4.4% to $92.34 per barrel. Despite the recent declines, Brent remained more than a third above its pre-war level. Gold moved in the opposite direction: spot gold rose 1.1% to $4,559.07 per ounce as of 07:36 GMT on 25 May, while US gold futures for June delivery gained 0.8% to $4,559.80. Other precious metals also advanced, with spot silver climbing 3.1% to $77.79 per ounce, platinum rising 2.3% to $1,966.59, and palladium up 2.7% to $1,384.70. The ICE US Dollar Index edged lower by 0.2%, with the dollar near its lowest levels in a week. US equity and bond markets were closed on 25 May for Memorial Day, though US stock futures advanced alongside Asian markets.

Asian equities surged on the peace deal optimism. Japan's Nikkei 225 rose more than 3% in morning trading, hitting an all-time high after closing at a record peak the previous Friday. Indian markets also rallied strongly: the Sensex ended 25 May up 1,074 points, or 1.42%, at 76,488.96, while the Nifty 50 settled at 24,031.70, gaining 312.40 points or 1.32%. Adani Enterprises, Eicher Motors, Larsen & Toubro and Bajaj Finance were the largest gainers in the Nifty 50, and Nifty Bank rose over 2% as private banks rallied. The Indian rupee strengthened against the US dollar, aided by falling oil prices and Reserve Bank of India comments indicating readiness to ensure orderly currency market conditions. The May 25 gains came after the Nifty 50 and Sensex had declined 5.8% and 7.2% respectively since the conflict began in late February.

Roughly 20% of the world's oil and liquefied natural gas typically passes through the Strait of Hormuz, but shipping traffic has virtually halted since hostilities began [Source: CNBC]. As of mid-May, the disruption was blocking the flow of around 14 million barrels of oil per day, according to the International Energy Agency [Source: Axios]. Saudi Arabia and the United Arab Emirates have increased the use of pipelines that bypass the Strait, but those additional volumes have not come close to offsetting normal Hormuz throughput. US average pump prices were approximately $1.50 per gallon above pre-war levels as of 24 May. Even if a deal is reached, analysts caution the supply recovery will be slow. ClearView Energy Partners said in a Sunday client note that de-mining the Strait, evacuating trapped tankers and restarting production could take weeks to months, with repairs and restocking requiring multiple calendar quarters to years [Source: Axios]. Energy consultancy Sparta estimates three to six months are required to return operations to the pre-war status quo, including time to bring production and refineries back online [Source: Al Jazeera]. MUFG warned in a recent note that full normalisation of Middle East oil supply may not occur until 2027 [Source: CNBC].

Sources: Business Recorder, Al Jazeera, CNBC, CNBC/Reuters, Bloomberg, Axios, Business Today, Business Standard, Benzinga, HDFCSky, Foreign Policy Journal