Oil declines as US ramps up diplomatic push to end war with Iran

Oil fell as a diplomatic push by the US to try to end the war with Iran gathered pace, eclipsing news of more troops being sent to the region and the Strait of Hormuz remaining largely shut.

Brent sank as much as 7% to almost $97 a barrel, while West Texas Intermediate was near $87. The US drafted a 15-point plan intended to help bring the conflict to a close, according to people familiar with the matter. The proposal — reported earlier by the New York Times — was delivered to Iran via Pakistan.

Earlier, President Donald Trump’s administration ordered the 82nd Airborne Division to deploy about 2,000 soldiers to the region, according to a person familiar with the matter, as the White House weighed options to ease Iran’s hold on the strait, the vital waterway that’s a focus of the conflict.

“We have clearly moved from what could have become the ‘obliteration’ stage in the US-Iran war toward a negotiated endgame, though given the lack of trust on both sides, that endgame is likely to be complex and drawn out,” said Robert Rennie, head of commodity and carbon research at Westpac Banking Corp.

Oil remains on track for a substantial monthly surge after a volatile run of trading as investors tracked the fallout from the war, which is now in its fourth week. At the heart of the conflict, Tehran has moved to exert control over Hormuz, choking off supplies of crude and gas from Persian Gulf producers to global markets, triggering concerns of an energy crunch.

The US public position on the conflict has shifted rapidly in recent days. At the weekend, Trump raised the stakes with a threat to bomb Iran’s power plants if Hormuz were not fully reopened within 48 hours. The president then pivoted away from that deadline, saying he would allow five days for talks. The 15-point overture to Tehran — as well as the decision on the extra troops — followed, even as Iran tightened its grip over the key strait.

The details of the latest proposal remained unclear, though Trump has publicly mused that any agreement would have to include a prohibition on Iran ever obtaining a nuclear weapon or enriching radioactive material for civilian purposes. It was not clear if Israel has signed off on the approach.

The pullback in prices reflects the “war-risk premium being cut,” said Charu Chanana, chief investment strategist at Saxo Markets. “But this is unlikely to be seen as an all-clear yet because Iran has publicly denied direct talks, while military activity and troop deployments are still continuing.”

On Tuesday, President Trump signaled Iran had offered a “present” as a show of good faith in talks he has claimed are ongoing. He didn’t detail the gift, but confirmed it was related to energy flows through the strait. White House Press Secretary Karoline Leavitt said while there was now a “newfound possibility of diplomacy”, US military operations would continue unabated.

Iran has said foreign ships are allowed to pass through the waterway, as long as they aren’t supporting acts of aggression against the country and follow regulations put in place by Tehran. The comments came in a letter circulated to members of the International Maritime Organization on Tuesday.

Israel — which opened the war in late February in a joint assault with the US — showed no signs of a letup, launching strikes across Tehran early Wednesday. In a report on the US diplomatic moves, Channel 12 said Israel was concerned about the proposal, and believed it was unlikely Iran would accept.

Still, Chinese Foreign Minister Wang Yi urged his Iranian counterpart, Abbas Araghchi, to engage in negotiations with the US as soon as possible to end the war, according to a government statement. China, the world’s largest oil importer, is the main buyer of Iranian crude.

“The market has been swayed by a willingness to forge some sort of agreement that takes the conflict toward a ceasefire,” said Chris Weston, head of research at Pepperstone Group in Melbourne. Safe passage through the strait would be the “cornerstone” of any future agreement, he said.

With refiners across the world rushing to secure alternative supplies of oil — especially processors in Asia — US crude exports are poised to surge next month, with some participants expecting record overseas flows.

In a sign of the shock triggered by the fighting, Chevron Corp. warned California is careening toward an energy crisis, and that the company may quit refining in the state unless officials rolled back regulations. The state is particularly exposed as it imports about 20% of refined fuels from Asia.

Petroleum products have rallied even harder than crude oil in recent weeks. In the US, average nationwide diesel prices have surged well above $5 a gallon to the highest level since late 2022. In California, the fuel used for trucking, construction and agriculture has topped $7 a gallon to hit a record.

In Australia, hundreds of service stations have reported fuel shortfalls. At least 600 retail sites have run out of at least one type of fuel, Energy Minister Chris Bowen told parliament on Tuesday, with shortages concentrated in the two most populous states, New South Wales and Victoria.

South Korea stepped up contingency planning for a worst-case Middle East scenario, with Prime Minister Kim Min-seok saying the government had to strengthen preemptive response systems as the conflict showed signs of persisting.

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