Oil Prices Rebound as Traders Reassess Iran Deal

Crude oil prices reversed their Tuesday losses Wednesday as skepticism grew over a potential U.S.-Iran diplomatic breakthrough. Brent crude rose to $67.59 per barrel, while West Texas Intermediate (WTI) climbed to $62.49.

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The recovery follows a 2% price drop earlier this week fueled by optimism in Geneva. However, the mood shifted after Iran partially closed the Strait of Hormuz during a military drill. The move served as a stark reminder to Washington that Tehran holds the lever to the world’s busiest oil chokepoint.

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The Geneva “Guiding Principles” Delay

Negotiators in Geneva reached an understanding on “guiding principles” for a new nuclear deal Tuesday. Still, Iranian Foreign Minister Abbas Araqchi warned that a finalized agreement remains distant. The lack of a concrete timeline has forced traders to price back in the geopolitical risk premium.

Meanwhile, the U.S. has maintained its heavy military presence in the Persian Gulf. President Trump’s “indirect” involvement in the talks has created a volatile atmosphere for commodities. In fact, many hedge funds are now betting that the diplomatic momentum is already stalling.

The Strait of Hormuz Chokepoint Risk

Iran’s decision to restrict traffic in the Strait of Hormuz during live-fire exercises rattled energy markets Wednesday morning. Approximately 20% of global oil consumption passes through this narrow waterway daily. Therefore, even a temporary closure could send global prices toward $100 per barrel.

Next, the U.S. Navy’s Fifth Fleet confirmed it is monitoring the “provocative” Iranian maneuvers. While Iran has avoided a full blockade in the past, the current drills are seen as a high-stakes leverage play. Thus, the risk of an unintended naval escalation has reached its highest level since 2023.

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Analyst Forecasts and Military Risks

Market experts suggest the current price action is a “technical rebound” after a period of overselling. “A finalized agreement remains distant, and markets remain cautious about the durability of diplomatic momentum,” Indian SS WealthStreet analyst Sugandha Sachdeva said Wednesday.

Still, the most alarming data came from the Eurasia Group today. The firm estimated a 65% probability of the United States launching a military strike against Iran by April 2026. This assessment is based on the deployment of the USS Gerald R. Ford and the lack of progress on ballistic missile restrictions.

Reality Check

Traders initially sold off oil on hopes that an “Iran deal” would flood the market with 1.5 million barrels per day. Still, even if a deal is signed tomorrow, it would take at least six months to restore Iranian production to full capacity. Therefore, the “supply glut” narrative was always premature. In fact, current global inventories remain 5% below the five-year average, making the market highly sensitive to the Hormuz drills.

The Loopholes

The “partial closure” of the Strait of Hormuz is a classic Iranian gray-zone tactic. In fact, international law allows for temporary military exclusion zones in certain territorial waters. Therefore, Iran can technically claim the drill is legal while effectively slowing down oil tanker traffic. Still, the U.S. considers the Strait an “international waterway” where free transit must be guaranteed. This legal loophole creates a constant flashpoint for potential conflict.

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What This Means for You

If you are tracking fuel prices in India, expect the recent price cuts to pause or reverse by next week. First, monitor the official statements from the Geneva negotiations on Thursday. Then, watch for any increase in freight insurance premiums for tankers in the Persian Gulf; this usually precedes a retail price hike.

Finally, realize that the Eurasia Group’s “65% strike probability” is a massive warning sign for global inflation. You should consider hedging energy costs if you manage a logistics or manufacturing business. Before the end of February, expect crude to test the $70 resistance level if the Hormuz drills continue.

What’s Next

The second round of Geneva talks will conclude on Thursday evening. Then, the U.S. State Department is expected to issue a “progress report” regarding the guiding principles. Finally, the IEA will release its revised March oil demand forecast on Friday, which may further influence price volatility.

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