Oil Drops 10% as Trump Blinks, But the War Risk Isn’t Gone

The Market Prices a Pause, Not Peace

Oil markets had a dramatic session on Monday, with Brent falling below US$100 per barrel and WTI dropping to US$88, both down roughly 10% after Trump posted that he was postponing threatened strikes against Iran.

For many investors, that probably comes as no surprise. In reality, bombing more energy infrastructure was never going to calm the market. It would only have pushed oil prices higher and likely kept the Strait closed for longer.

What is also interesting is that Trump says he is in productive talks with Iran, while Iran has denied that any talks are taking place. That in itself tells us how uncertain and fragile the situation still is.

Even with the one-day relief rally, the broader backdrop remains extreme. Four of the six largest single-day swings in Brent futures history have occurred since the conflict began on 28 February.

On the supply side, Goldman Sachs has described this as the largest oil supply shock ever, estimating that crude output losses could peak at 17 million barrels per day before gradually recovering over four weeks once the Strait reopens. That would imply total losses of around 800 million barrels.

The IEA is also considering a coordinated strategic reserve release, although the US Energy Secretary has pushed back on the idea, saying it is highly unlikely the US would release more than the 172 million barrels already announced, which began flowing on Friday, earlier than the expected three-week lead time.

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Where Does This War Go From Here?

This is probably the most important question in global markets right now. Trump’s decision to postpone strikes is a meaningful signal. By nature, he is transactional, so if Iran is offering something through back-channel talks, that could help open the door to a more favourable outcome.

It is also important to remember that Iran is under enormous economic pressure. The oil shock hurts everyone, but Iran’s economy has already been weakened by decades of sanctions. It cannot sustain a prolonged blockade of oil flows without severe internal consequences.

The IRGC may control the Strait, but Iran’s civilian government and broader political establishment know that a drawn-out conflict could push the country toward a much deeper economic crisis, potentially one that threatens regime stability.

There is also the military reality. The US and Israel have shown they can strike Iranian infrastructure with relative ease, and that changes the calculus around how long Iran can afford to hold out.

Our overall assessment

The most likely path from here is a negotiated pause that turns into a fragile de-escalation over the next four to eight weeks. Not a clean resolution, but enough to reopen the Strait and bring oil back toward the US$75 to US$85 range.

Trump has strong political incentives to claim a win and avoid a full-scale war that pushes fuel prices even higher, while Iran also needs to survive economically. Both sides have reasons to step back.

The real tail risk, and what we would put at around a 20% probability, is that the IRGC overplays its hand, talks collapse, and the US and Israel escalate strikes on energy infrastructure.

That is the scenario that turns into a prolonged and destabilising conflict with no clear end date, and one where oil could stay structurally above US$110 for an extended period.