Oil Prices Plummet After Iran’s Limited Response \ Newslooks \ Washington DC \ Mary Sidiqi \ Evening Edition \ Oil prices dropped sharply after Iran limited its response to a missile strike on a U.S. base instead of attacking oil flows. Traders drew confidence from Tehran targeting parity with U.S. strikes rather than closing the Strait of Hormuz. The plunge is a boon for global markets and American drivers—but markets remain cautious amid geopolitical risk.
Quick Looks
- WTI crude plunged 7.2% to $68.51 following Iran’s missile strikes on Al Udeid.
- Price dropped further, hitting $66.10 after Trump’s ceasefire announcement.
- Brent initially spiked 4%, then stabilized with signs of calm.
- No closure of Strait of Hormuz, easing fears of global supply disruption.
- Tom Kloza calls it a historic selloff, citing muted response.
- VP Vance says closing Hormuz “suicidal” for Iran’s oil revenues.
- Analysts warn Tehran could still disrupt traffic via jamming, mines, or strikes.
- Trump urges increased U.S. drilling and Federal Reserve rate cuts.
- GasBuddy shows average U.S. price at $3.18/gallon, slightly up.
Deep Look
Global oil markets underwent a dramatic swing on Monday following Iran’s missile strike on Al Udeid Air Base in Qatar, a facility used by the U.S. military. At first glance, the geopolitical move sparked fears of broader conflict in the Middle East, but traders quickly revised their outlook as it became apparent the strike was measured and symbolically retaliatory rather than a prelude to major escalation. The price of West Texas Intermediate (WTI) crude fell by 7.2%, closing at $68.51 per barrel—a plunge that underscores how markets interpreted Iran’s move as a potential step toward de-escalation rather than provocation.
The impact deepened later in the day when President Donald Trump announced that Israel and Iran had agreed to a “complete and total ceasefire” to be phased in over the following 24 hours. That news sent oil prices tumbling further, with WTI sliding another 3.5% to $66.10 per barrel. That price is now below levels seen before the latest round of fighting between Iran and Israel began more than a week ago, when crude hovered just above $68.
Tom Kloza, chief market strategist at Turner Mason & Co., called the day’s plunge one of the most notable in memory. “When the response comes and it is muted, oil drops,” he said, emphasizing how fears of a massive retaliatory campaign proved unfounded.
Initially, the markets had braced for a far worse scenario. On Sunday evening, as futures opened, Brent crude—the international benchmark—spiked 4%. Traders feared Iran might move to close the Strait of Hormuz, the narrow but vital maritime passage through which about a fifth of global crude and liquefied natural gas is shipped. Iranian lawmakers had publicly floated the idea of a closure in response to U.S. and Israeli strikes, which raised alarms across the energy and finance sectors.
A closure of the Strait would be catastrophic for global energy supply chains and could push oil prices well beyond $100 per barrel. Yet many seasoned analysts dismissed the possibility. Iran’s own economy is deeply reliant on oil exports, with roughly 1.5 million barrels per day moving through the same strategic waterway. Shutting it down would not only provoke a severe military response from the U.S. Navy but would also decimate Iran’s vital revenue streams. At current prices, that revenue is estimated at about $40 billion annually, constituting a significant portion of Iran’s GDP.
“It’s a silly notion that the Iranians would look to do that,” said Kloza. “I’ve been covering oil for 50 years and we’ve never seen the Strait of Hormuz compromised.”
Vice President J.D. Vance put it more bluntly during a Sunday appearance on NBC’s “Meet the Press,” calling such a move “suicidal” for Tehran.
Despite the easing of immediate tensions, experts caution against assuming the crisis is over. Iran has a range of tools it could still use to influence oil markets without fully closing the Strait. Houston-based energy analyst Andy Lipow outlined several potential disruptive strategies: jamming navigational systems in the Strait, laying naval mines, or even launching attacks on commercial tankers. These actions, while falling short of outright closure, would trigger higher insurance premiums for shippers and slow down global oil supply chains, which could quickly drive prices back up.
Lipow emphasized the unpredictability of geopolitical conflicts. “Countries, like people, don’t always act in their economic interests,” he noted. “The question for the oil markets is, ‘Is this time different?’”
These uncertainties arrive at a precarious time for the global economy. President Trump has repeatedly downplayed inflation concerns, arguing that the worst is over. However, many economists warn that rising oil prices—if they were to return—could revive inflationary pressures just as the effects of tariffs and trade disruptions begin filtering through to consumers. A renewed energy price spike could also complicate the Federal Reserve’s calculus on interest rates, especially if fuel costs surge during the high-demand summer driving season.
Trump, clearly attuned to this risk, issued a forceful message via Truth Social on Monday. In all caps, he commanded the Department of Energy: “DRILL, BABY, DRILL!!! And I mean NOW!!!” He also warned, “EVERYONE, KEEP OIL PRICES DOWN. I’M WATCHING!”
For now, markets are betting that a major confrontation has been avoided. But the fragile nature of the ceasefire, the risk of miscalculation, and Iran’s options for covert disruption mean oil markets remain on high alert. What happens next could hinge not only on military strategy but also on how each side weighs the cost of escalation against the pain of economic disruption.
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