“Just weeks ago, traders were bracing for an energy shock if the Iran war choked off the Strait of Hormuz. Now oil has slipped back below its pre-war level, and the market is reading that as a sign the worst-case scenario may not be happening.”
Oil prices have dropped back to levels last seen before the Iran war began, as more tankers resumed moving through the Strait of Hormuz and investors started to pull back from fears of a major energy supply shock.
By Thursday, Brent crude had fallen to $72.24 a barrel, slipping slightly below where it stood before the United States and Israel launched missile strikes on Tehran on 28 February. That is a remarkable turn for a market that, only a few weeks ago, was pricing in the possibility of a much deeper disruption if the conflict spilled into one of the world’s most important oil shipping routes.
The drop matters not just because of the price itself, but because of what it says about the mood in the market.
For much of the Iran crisis, the Strait of Hormuz sat at the centre of global energy anxiety. Around a fifth of the world’s oil passes through that narrow waterway, and any serious interruption there would have sent oil surging and inflation worries roaring back to life. Instead, traffic through the strait has started to pick up again. The Guardian reported that vessel traffic doubled over the previous 24 hours to its highest level since late February, with more tankers now exiting the passage and some ships even turning their satellite signals back on as they moved through.
That shift has helped calm the market.
Analysts say the combination of easing fears around Hormuz, weak demand from China, strategic inventory releases and a backlog of tankers leaving the Gulf has pushed the oil market into a softer position than many expected. Ipek Ozkardeskaya of Swissquote said a “substantial number of tankers quietly leaving the Persian Gulf” had helped create a small oversupply in key markets, while Susannah Streeter of Wealth Club said fears of a long-lasting energy crunch triggered by the Iran conflict were now “slinking away.”
And investors have responded quickly.
Stock markets on both sides of the Atlantic moved higher on Thursday as the retreat in oil eased worries about another inflation shock. The Stoxx 600 in Europe hit a record high, while the Dow Jones also pushed to fresh highs. That is the other side of the oil story: when crude falls sharply after a geopolitical scare, it does not just help energy importers and drivers. It also relieves pressure on central banks and reassures investors who had been worrying that a fresh oil spike would feed back into prices across the economy.
There may also be some relief for motorists.
In the UK, the RAC said the drop in crude prices could pull the average cost of petrol below 150p a litre in the coming days, which would make unleaded the cheapest it has been in about three months. Diesel, it said, should also slip back below 160p. Andrew Bailey, governor of the Bank of England, welcomed the fall in energy prices this week, saying it looked as if a truce had broken out and noting the “quite sharp fall” in oil.
Still, the market is not acting as if all the risk has vanished.
The interim understanding between the US and Iran is fragile, and tensions are already resurfacing around the terms of the deal. Israel’s strike in southern Lebanon this week is one reminder that the wider region remains volatile, and analysts are warning that oil could still swing sharply if the ceasefire unravels or if China’s demand picks up again as tensions cool. Ozkardeskaya said crude may now move in a broad $60 to $80 a barrel range in the coming weeks, which is another way of saying the market has calmed down, but it has not become comfortable.
So yes, oil is back below its pre-war level.
But the bigger story is what that reversal tells us. The market is starting to believe the Strait of Hormuz will stay open, the immediate supply shock may be avoidable, and the energy panic that defined the early weeks of the Iran conflict is beginning to fade.
That is a big shift.
It just may not be a permanent one yet.
