Crude markets edged upward on Friday as traders reassessed the durability of a nascent US-Iran peace agreement, even as underlying fears about Middle East stability continued to weigh on sentiment. Brent crude futures gained 0.64% to $80.36 per barrel, while West Texas Intermediate crude jumped 1.7% to $77.88 per barrel, though both benchmarks remained on track for weekly declines of approximately 8%. The modest daily gains masked deeper anxieties about whether recent diplomatic efforts would translate into lasting regional stability.
The fragile optimism that had briefly lifted markets earlier this week unravelled after Switzerland announced the cancellation of planned US-Iran negotiations, a setback compounded when Vice President JD Vance withdrew from travel plans to the talks. The postponement signals unexpected friction in the diplomatic process just days after the presidents of Iran and the United States signed an interim understanding aimed at terminating their broader conflict. Market observers immediately flagged the development as potentially consequential, warning that any deterioration in the peace framework could derail expectations for a substantial influx of previously trapped oil supplies into global markets.
Analysts at Vanda Insights pointed out that the cancelled negotiations had already exposed structural weaknesses in the preliminary accord. According to Vandana Hari, the founder of the analysis firm, prices may have reached a temporary floor as volatility reshapes trading patterns in the coming weeks. She cautioned that the current geopolitical environment provides little comfort to traders betting on normalized shipping through the Strait of Hormuz, one of the world's most critical oil conduits. This assessment underscores a fundamental market concern: price stability depends not merely on whether a deal exists on paper but on whether it holds under real-world pressure.
The broader picture reflects how tentative supply relief remains despite recent diplomatic breakthroughs. On Thursday, both crude benchmarks had touched their lowest levels since early March as several vessels, including three Saudi-flagged tankers laden with 6 million barrels, transited the Strait of Hormuz shortly after the presidential agreement was announced. These initial movements suggested cautious optimism that trade corridors might reopen, yet the cancelled talks have injected fresh uncertainty into assumptions about sustained normalisation. Industry analysts expect that if the agreement endures, more than 85 million barrels of crude currently stranded across Middle Eastern Gulf facilities could flow into international markets, fundamentally reshaping global supply dynamics.
The lifting of US sanctions on Iranian oil exports represents another potential game-changer with substantial ramifications for both producers and consumers. Should these restrictions be fully removed as part of a comprehensive agreement, Iranian crude would swell available supply further, potentially exerting sustained downward pressure on prices. However, this scenario depends entirely on the diplomatic process moving forward without major disruptions. Tim Waterer, chief market analyst at KCM, highlighted that traders remain deeply cautious, waiting for tangible evidence that shipping patterns through Hormuz are genuinely stabilizing before committing to lower price expectations. This hesitation reflects hard-learned lessons about the volatility of Middle East geopolitics.
Prior to recent conflicts, the Strait of Hormuz facilitated transit of roughly one-fifth of the world's oil supplies and liquefied natural gas. Market participants have suggested that if the US-Iran understanding holds firm, trade flows could return to pre-conflict levels within coming months, representing a dramatic recalibration of global energy markets. Such a scenario would be particularly significant for Asian economies heavily dependent on Gulf oil, including major purchasers in Southeast Asia and Northeast Asia. The prospect of normalized Hormuz shipping would ease long-standing supply concerns that have underpinned elevated price premiums over the past period.
Meanwhile, Middle Eastern producers have begun taking concrete steps to resume operations suspended or curtailed during recent hostilities. Kuwait Petroleum Corporation announced on Thursday the immediate lifting of all force majeure declarations issued throughout the conflict, signalling confidence in improved operating conditions. Iraqi Oil Minister Basim Mohammed similarly indicated that his country's oilfields stand ready to restart production, with output expected to gradually climb back towards historical norms. These announcements suggest regional producers believe the diplomatic breakthrough offers a genuine opening for supply recovery, though their cautious language also implies awareness that circumstances could shift rapidly.
Yet the durability of these assumptions faces a critical test from ongoing Israeli military operations against Hezbollah across Lebanon. The continuation and apparent intensification of these hostilities introduce a complicating factor that directly threatens confidence in the US-Iran agreement's longevity. Should Lebanon tensions escalate further or expand to engulf other regional players, the fragile peace framework could unravel entirely, instantly erasing the confidence that has begun to support expectations for normalised trade and lower prices. This dynamic reflects the interconnected nature of Middle East conflicts and the difficulty of achieving durable peace when multiple disputes remain unresolved.
For Malaysian and broader Southeast Asian markets, the oil price trajectory carries immediate implications for inflation, transportation costs, and energy security. As a region with significant energy import dependence, sustained crude price volatility creates planning challenges for policymakers and businesses. The potential for substantial oil supply increases, if diplomatic efforts succeed, could provide welcome relief from elevated energy costs that have constrained regional economic growth. Conversely, any collapse in the peace process would likely trigger renewed price spikes, negating recent modest declines and potentially intensifying inflationary pressures across the region.
Market participants acknowledge that the coming weeks will be decisive in determining whether the US-Iran accord represents a genuine turning point or merely a temporary reprieve in a persistently unstable region. The postponed Swiss talks and Israeli-Hezbollah tensions have already introduced sufficient doubt to prevent crude from securing a sustained rally, despite the theoretical bullishness of elevated geopolitical risk. This hesitation reflects trader uncertainty about whether diplomatic structures, once damaged, can be repaired quickly enough to prevent wider conflict escalation. The next phase will depend critically on whether negotiators can resurrect stalled talks and whether Israel and Iran can maintain restraint despite their respective security concerns and long-standing antipathy.
