Oil hits three-month low as Trump signals Iran deal breakthrough, offering India relief

Oil prices dropped to their lowest point in three months this week after President Donald Trump announced that a peace agreement with Iran was nearly complete. Brent crude, the global benchmark, briefly dipped below $85 a barrel—a level not seen since the earliest days of the conflict that began in late February—before settling around $87.50. Before the war started, oil had been trading at $70 a barrel. The prospect of a deal matters far beyond energy markets. If the United States and Iran actually reach an agreement, the Strait of Hormuz—the narrow waterway through which nearly half of India's crude oil and most of its liquefied petroleum gas once flowed—could reopen fully. That single change would reshape India's economic picture: lower fuel import bills, cheaper petrol and diesel at the pump, reduced inflation, a stronger rupee, and faster economic growth.

India has already felt the pinch. State-run fuel companies have raised petrol and diesel prices four times since mid-May to absorb the shock of disrupted oil supplies. Petrol has climbed nearly 8 percent; diesel has jumped more than 8.5 percent. Those increases ripple through the entire economy, pushing up transportation costs and feeding inflation. A reopened Strait would reverse that pressure.

Trump declared on Friday that all parties had approved the final details of the proposed agreement. Pakistan's Prime Minister Shehbaz Sharif echoed the claim, saying negotiators were working through final procedural steps and that "peace has never been this close." Iran's Foreign Minister Seyed Abbas Araghchi posted that a memorandum of understanding between the two countries "has never been closer." U.S. officials expect the agreement to be signed within days. Under the proposed terms, the Strait would fully reopen, the U.S. would lift its naval blockade, and Iran's nuclear program would be dismantled with enriched material transferred out of the country. A 60-day technical negotiation phase would follow.

But cracks appeared almost immediately. Iran's state-backed Mehr news agency published what it said were details of the proposal, including a demand that the U.S. release $24 billion in frozen Iranian assets—with half the money handed over before talks even began. Vice President J.D. Vance quickly denied the claim, insisting that no funds would be released simply for signing an agreement and that any financial benefits would come only if Iran fully complied with its obligations. The conflicting accounts are a reminder that deals at this stage can still collapse entirely.

Analysts caution that even if an agreement is signed, shipping disruptions, sanctions complications, and Middle East tensions could persist. Warren Patterson, head of commodities strategy at ING, noted bluntly: "We've been at this stage before, only for talks to break down." If the deal falls apart and oil flows through the Strait fail to recover by late July, crude prices could climb to between $120 and $130 a barrel as global inventories tighten.

The world has avoided a worse crisis so far because global oil production has outpaced demand, creating a supply cushion that absorbed much of the shock from the Strait's closure. China's weakening demand for imported oil, Saudi Arabia's pipeline rerouting, government releases from strategic reserves, and increasing tanker traffic through the waterway have all helped. The U.S. Energy Secretary reports that seven million barrels of oil and fuel now pass through the Strait daily—down sharply from the 20 million barrels that flowed before the war.

But the cushion is shrinking. U.S. commercial crude inventories fell by more than seven million barrels last week to 426.5 million barrels, partly because American oil is being shipped overseas to buyers filling supply gaps. Inventories at key U.S. refining hubs stand at about 351 million barrels—still above what S&P Global Energy calls the "danger zone" of 325 million barrels, but approaching it. Once inventories drop below that threshold, the market becomes vulnerable to logistical bottlenecks and sharp price spikes. Washington has ruled out restricting exports despite shrinking domestic stockpiles, meaning the pressure on global supplies will only intensify if the Iran deal stalls.