Oil Falls as US Diplomatic Push to Iran Cuts Risk Premium
Oil prices weakened on Wednesday (March 25th) after the US stepped up its diplomatic push to end the war with Iran, shifting market focus away from military escalation even though the Strait of Hormuz remains largely closed. Brent briefly fell by around 7% to US$97/barrel before paring losses, while WTI hovered around US$89, reflecting a reduction in the risk premium for war.
According to sources familiar with the matter, the US has drafted a 15-point plan to end the conflict and is conveying it to Iran via Pakistan. Simultaneously, the Trump administration has ordered the deployment of approximately 2,000 personnel from the 82nd Airborne Division to the region, as the White House considers options for reducing Iran's control over Hormuz. Westpac assesses that the market is moving from a "maximum" threat phase toward a negotiating endgame, although a lack of trust between the two sides makes the process potentially complicated.
However, signals from Tehran remain strong. Futures prices briefly pared losses after Iran launched a new wave of missiles at Israel and indicated little chance of compromise, including a rejection of ceasefire talks, according to state media. Iran also implied it would not allow oil prices to return to previous levels as long as the threat to the country remains, signaling that supply risks remain unresolved.
Despite the deep daily correction, oil is still heading for a large monthly gain amid volatility in the fourth week of the war. The crux of the issue remains Hormuz: Iran's tightening of controls has disrupted oil and gas flows from Gulf producers to global markets, sparking fears of an energy crisis. The rapid shift in US policy—from threatening an attack, to offering time for talks, to submitting a proposal—has made prices highly reactive to headlines.
The market is also awaiting details of the proposal and whether Israel supports the approach. Some analysts believe the price correction reflects a "cutting of the war risk premium," but it cannot be interpreted as a safe haven, as Iran denies direct talks, military activity continues, and troop deployments are ongoing. Key for the market is evidence of safe shipping lanes, as safe passage in Hormuz would be the foundation of any agreement.
China is also pushing for diplomacy, with Foreign Minister Wang Yi urging Iran to immediately negotiate with the US. For the market, a shift toward a ceasefire could lower the risk premium, but as long as Hormuz flows remain unrecovered and attacks continue, volatility is likely to remain high.
Source: Newsmaker.id
