Key Points
- Markets swing back into crisis mode as geopolitical tensions overshadow Iran-US peace deal hopes
- Trump-Xi talks this week emerge as a key focus for energy and financial markets
ISLAMABAD: Global oil prices rallied sharply on Monday after US President Donald Trump dismissed Iran’s response to the US peace proposals as “totally unacceptable,” reigniting fears of a prolonged Middle East conflict.
Trump’s rejection left the Strait of Hormuz in limbo and renewed fears of Middle East oil supply disruptions in one of the world’s most vital energy corridors.
Brent crude futures climbed more than 4 per cent to trade above $105 a barrel in Asian hours. Likesie, US West Texas Intermediate advanced close to 5 per cent to near $100 a barrel.
In early trade, all the crude benchmarks quickly reversed part of last week’s steep losses, which were driven by optimism over a possible deal to make the ceasefire permanent.
The rebound revealed how fragile sentiment remains across global energy markets, with traders rapidly shifting positions in response to developments regarding the Strait of Hormuz, the narrow waterway handling nearly one-fifth of the world’s oil trade.
Trump, who is expected to travel to China later this week for high-level talks with Chinese President Xi Jinping, signalled that diplomatic progress with Tehran remains distant after publicly rejecting Iran’s latest counterproposal.
Iranian President Masoud Pezeshkian responded by declaring that Iran would not “bow down to the enemy,” though he maintained that dialogue did not amount to surrender.
The anti-optimism exchange rattled markets that had begun pricing in the possibility of de-escalation after weeks of volatile trading linked to the Iran war.
Analysts said oil has increasingly become hostage to geopolitical headlines, with every diplomatic signal from Washington, Tehran or Beijing triggering sharp swings in futures markets.
Investors are now closely watching Trump’s upcoming meeting with Xi, amid expectations that China could play a decisive role in efforts to ease tensions and restore stability to Gulf shipping routes.
Beyond political uncertainty, traders are also confronting worsening physical supply risks.
Saudi energy giant Saudi Aramco warned that approximately 1 billion barrels of oil supply had effectively been lost from global markets over the past two months because of ongoing disruptions.
Aramco chief executive Amin Nasser cautioned that global energy markets would require significant time to rebalance even if flows through Hormuz normalise in the near term.
Shipping data also highlighted the growing insecurity surrounding Gulf transit routes.
The highlights came after at least two additional oil tankers reportedly exited the Strait of Hormuz with their tracking systems switched off to reduce exposure to potential attacks.
The practice is becoming increasingly common among commercial vessels operating in the region as shipowners, insurers, and traders attempt to maintain exports despite heightened military threats.
Global financial markets reflected the uneasy mood. Japan’s Nikkei and Hong Kong equities edged lower, whereas South Korean stocks advanced on gains in technology shares.
Currency markets also tilted toward caution, with the US dollar strengthening against major rivals as investors sought safer assets.
Analysts at ING, a major Dutch multinational bank and financial services company headquartered in Amsterdam, Netherlands, said geopolitical risks are tied to Hormuz disruptions and depleted inventories.
So far, non-yielding international policy coordination is likely to keep a substantial risk premium embedded in oil prices well into 2027, they added.
The bank expects Brent crude to remain above $90 a barrel through much of 2026. before gradually easing as inventories recover and demand growth stabilises.
