Global oil prices fell sharply on Monday after the United States and Iran suspended military attacks for a second consecutive night, boosting hopes that diplomatic efforts could ease tensions and restore stability to global energy markets.

Brent crude, the international benchmark for oil prices, dropped by more than nine per cent, falling below $88 per barrel after surging above $100 per barrel last week amid escalating conflict between the two countries.

The decline followed remarks by the United States ambassador to the United Nations, who said military operations against Iran had been paused to allow diplomatic talks to continue. Iranian officials also confirmed that Tehran had halted retaliatory attacks in the region, signalling a possible de-escalation of the crisis.

The conflict had triggered sharp increases in oil prices after fighting effectively shut down the Strait of Hormuz, one of the world’s most critical energy shipping routes through which nearly one-fifth of global oil and liquefied natural gas supplies normally pass.

Although a memorandum of understanding signed by Washington and Tehran in June briefly reopened the strategic waterway and pushed oil prices back to around $70 per barrel, the collapse of the agreement earlier this month reignited fears of supply disruptions. Those concerns intensified after Yemen’s Houthi rebels launched attacks on oil tankers in the Red Sea, threatening another major export route used by Gulf producers.

Market analysts cautioned that despite the sharp decline in oil prices, uncertainty surrounding the conflict remains high.

Susannah Streeter, Chief Investment Strategist at Wealth Club, said investors were remaining cautious because of the unpredictable nature of the crisis.

“Although crude prices have fallen sharply, there is still significant uncertainty built into the market, and doubts remain over whether negotiations will deliver a lasting breakthrough,” she said.

The recent volatility in oil markets has already pushed up the cost of petrol and diesel in many countries, increasing transportation and production costs for businesses. Those higher costs have contributed to rising food prices and broader inflation, placing additional pressure on households and economies worldwide.

Persistent inflation has also influenced central banks’ monetary policy decisions. In June, the European Central Bank raised interest rates for the first time in nearly three years, citing inflationary pressures linked to the conflict.

In the United Kingdom, expectations that the Bank of England would reduce interest rates this year have faded. Financial markets are now anticipating that the central bank will keep its benchmark rate unchanged at 3.75 per cent during its meeting this week, with the possibility of a rate increase later in the year if inflationary pressures persist.

While the pause in hostilities has provided temporary relief to global markets, investors and policymakers remain closely focused on diplomatic negotiations, which are expected to determine whether the recent decline in oil prices can be sustained.

(BBC News)