Reports indicate that the US and Iran are discussing a phased reopening of the Strait of Hormuz, causing crude oil prices to plummet by half.

A news report that the US and Iran were considering a phased reopening of the Strait of Hormuz quickly ignited the oil market: international crude oil futures, which had previously risen by about 5% during the session, quickly gave back most of their gains. Market expectations of a breakthrough in US-Iran diplomacy quickly suppressed the oil price gains that had accumulated due to geopolitical risks.

At the start of the midday trading session on Thursday, Eastern Time, Reuters, citing Iranian sources, two regional officials, and two Western diplomatic sources, reported that U.S. and Iranian negotiators were in New York discussing a phased path to ending the war, which would include Iran reopening the Strait of Hormuz, the U.S. lifting its economic blockade against Iran, and Iran potentially receiving some of its frozen assets.

Following the news, US WTI crude oil briefly fell back below $93.30, with its daily gains narrowing to about 1%; Brent crude oil briefly fell below $99 to below $98.70, with a daily gain of less than 0.6%. However, the downward trend did not continue, and subsequently, the intraday gains for both WTI and Brent crude oil expanded to over 1.5% and 2%, respectively.

Prior to this news, international crude oil futures accelerated their upward trend after rebounding on Wednesday. When US stocks hit their daily highs in early trading on Thursday, WTI crude oil rose to $96.78 and Brent crude oil to $108.23, both up about 5% on the day. Media outlets believe that a major driver of the accelerated rebound in oil prices on Thursday, following Wednesday's move, was the Houthi missile strike on Saudi Arabia in Yemen. Another key reason was the market's perception of limited progress in US-Iran diplomatic negotiations.

US and Iran's exploration of a "Strait in exchange for reopening" plan has been revealed.

Reuters reports that a senior Iranian official said the most feasible way to break the deadlock in negotiations is to reach a phased arrangement: Iran would allow ships to pass through the Strait of Hormuz in exchange for the United States lifting its economic blockade against Iran, and Tehran could also receive its frozen assets.

This means that the reopening of the Strait of Hormuz could become a key bargaining chip in US-Iran negotiations.

Reuters, citing sources, reported that a major obstacle in the current US-Iran negotiations is that neither side is willing to relinquish its bargaining chips first. Iran hopes to gain access to the Strait of Hormuz in exchange for the US easing economic pressure, while the US wants to ensure the restoration of stable and free shipping along this crucial global oil transport route.

According to this phased plan, Iran might first allow ships to gradually resume passage through the Strait of Hormuz, in which case the United States would take corresponding measures such as lifting the economic blockade. Iran might also gain access to its frozen assets.

However, Reuters emphasized that this is still a negotiating proposal, and the two sides have not yet reached an agreement, with significant differences remaining in the negotiations.

Why did oil prices surge previously?

Before the Reuters report, international oil prices had rebounded for the second consecutive trading day on Thursday.

Previously, international crude oil futures had closed lower for five consecutive trading days. On Thursday, driven by renewed geopolitical risks, they rose significantly, with WTI and Brent crude oil both rising by about 5% at one point during the session.

One important factor is that the market believes there has been limited progress in US-Iran diplomatic negotiations, meaning that supply risks in the Strait of Hormuz could persist for longer.

The Wall Street Journal, in its report on oil price movements on Thursday, cited "limited diplomatic progress between the United States and Iran" as one of the key factors contributing to the rise in oil prices. Reuters' oil market report that day also noted that oil prices rose by about 4% to a one-week high on Thursday, due to factors including the Iranian-backed Houthi rebels' missile launches at Saudi Arabia and the lack of significant progress in US-Iran diplomatic negotiations.

In other words, prior to the latest news from Reuters, the core logic of oil market trading was still **"lack of diplomatic progress → continued war and supply risks → potential continued disruptions to the Strait of Hormuz → rising oil price risk premium"**.

However, this logic quickly changed with the emergence of news that "the US and Iran are studying a phased reopening of the Strait of Hormuz".

The Strait of Hormuz becomes a key bargaining chip

The Strait of Hormuz is able to so quickly influence oil prices because it is one of the world's most important energy transport routes.

Amid the current US-Iran conflict, the navigation status of the Strait of Hormuz has been a key variable in the international crude oil market. The market has already been trading on the potential supply risks caused by obstructed straits, but if US-Iran negotiations can lead to the reopening of the Strait, market concerns about supply disruptions could significantly subside.

Therefore, the sharp fluctuations in oil prices on Thursday were essentially a rapid shift in market dynamics between two scenarios:

Previously, the market was trading on limited progress in US-Iran negotiations and continued risks in the Strait of Hormuz ; however, after the Reuters report, the market began trading on the possibility of a phased solution between the US and Iran and the possible reopening of the Strait of Hormuz .

It is worth noting that the Reuters report does not imply that the US and Iran have reached an agreement. The sources cited in the report also pointed out that significant differences remain between the two sides, particularly regarding how to arrange for both sides to simultaneously release their leverage.

Therefore, for the oil market, what truly matters is not the news of the "phased plan" itself, but whether this idea can be further transformed into a concrete agreement, and whether the Strait of Hormuz can truly resume stable navigation.

Prior to this, any new information regarding progress in US-Iran negotiations, the reopening of the Strait of Hormuz, and regional attacks could continue to trigger significant fluctuations in oil prices.

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