2 percent. That's how much Brent crude for August delivery slipped on Friday as mounting signs suggested the United States and Iran were closing on a preliminary memorandum of understanding to end their three-month war and reopen the Strait of Hormuz. West Texas Intermediate for July fell to about $87 a barrel while Brent eased to just under $91, the New York Times market report said, as traders trimmed positions amid an uptick in diplomatic optimism. If the strait reopens, it could relieve the single largest energy choke point that has driven sharp global fuel price increases.

Reopening the Strait of Hormuz would loosen a choke point that has produced the largest energy supply disruption in history, and that prospect is what drove the slide in oil on Friday. Negotiators were discussing a draft memorandum of understanding that market participants said appeared close to winning approval, though several sticking points remained, most prominently the future legal and security status of the waterway.

Market moves and immediate drivers

Brent fell roughly 2 percent to just under $91 for August delivery, and U.S. crude dropped to about $87 for July delivery, the New York Times market report said. Traders had already pared positions earlier in May after first reports that the two sides were near a 14-point, one-page framework, a move that sent Brent down nearly 8 percent and U.S. crude about 7 percent on that day. The session was choppy, and modest gains in global equities accompanied the easing in oil, the New York Times noted.

Analysts at ING warned that a deal restoring normal flows through Hormuz would be crucial but wouldn't erase market vulnerability. Inventories that had been filling the gap created by the blockade were drawing down, ING said, and those stockpiles had been offsetting roughly 13 million barrels per day of disrupted supply. One estimate cited an increase in crude prices of more than 30 percent since the strikes that began on February 28, a jump that reflects the scale of the disruption from the effective blockade.

The conflict began in late February after U.S. and Israeli strikes, and Iran's subsequent actions led to what has been effectively a blockade of shipping through the Strait of Hormuz. The waterway handles about 20 percent of global oil supply, and Iran's restrictions on passage since early March have dramatically cut Middle East exports, forcing the market to rely on alternative flows and stored crude and refined fuels.

Mastheads

Negotiators report progress but also unresolved differences. Iran has pressed for sanctions relief and access to frozen assets as part of any initial settlement, while the United States has emphasized preventing Iran from advancing its nuclear program.

Control of access to the strait is itself contested: Tehran has argued that ultimate discussions about the waterway belong between Iran and Oman rather than being decided multilaterally or by outside powers.

President Donald Trump said talks were "proceeding nicely" and cautioned that the United States could resume offensive action if negotiations collapsed. A spokesperson for Iran's Foreign Ministry said Iran was "evaluating" Washington's proposal. Those comments captured both the cautious optimism and the fragility of the diplomatic window. Sporadic exchanges of fire between U.S. and Iranian forces earlier in the week showed how quickly a fragile truce could fray.

For markets, the core question is how quickly any memorandum could be translated into resumed, sustained flows through Hormuz. Even with a signed framework, operational details, verification mechanisms, and the lifting or easing of specific sanctions would determine how fast barrels actually return to world markets. Until those elements are resolved, inventories and alternative supply routes will continue to set the near-term balance, leaving prices vulnerable to renewed spikes if diplomacy slips.

Economically and politically, the stakes are straightforward. Lower oil prices ease near-term inflationary pressure and reduce fuel costs for consumers and businesses, but a premature market reading that the dispute is solved could leave traders exposed to an abrupt reversal should talks collapse. That risk premium has been a persistent feature of trading since late February.

In short, markets are pricing a growing probability that the memorandum will at least outline a pathway to reopen Hormuz, while simultaneously pricing in the significant uncertainty that remains over final provisions and implementation. That combination produced Friday's modest drop in crude and the cautious tone among traders heading into whatever negotiating sessions come next.

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Negotiators must settle the strait's legal and security arrangements before any accord can be finalized and sustained flows through the waterway can resume.

This article was created with AI assistance.