The stock market rallied and oil prices tumbled Monday after President Donald Trump said he had called off planned military strikes on Iran to focus on diplomatic negotiations, easing geopolitical tensions that had sent crude soaring in recent weeks.
Brent crude, the international oil benchmark, fell 5% to $83.50 a barrel by mid-morning, while US West Texas Intermediate dropped more than $5 to $79.47 a barrel, according to The Guardian. Trump announced on Truth Social late Saturday that Iran and other Middle Eastern countries had asked for time to complete a deal that would reopen the Strait of Hormuz and end Iran’s nuclear threat, with talks set to begin Monday.
European stock markets responded positively to the de-escalation. The pan-European Stoxx 600 index rose 0.4%, with travel and leisure shares gaining 2.1%, though energy stocks declined 2% as lower oil prices weighed on that sector. In the US, stock futures jumped following Trump’s announcement, according to Barron’s.
Both global oil benchmarks had surged more than 20% in July after fighting between the US and Iran resumed, and attacks on tankers in the Strait of Hormuz raised concerns about shipping safety. Oil prices had climbed under the weight of a geopolitical risk premium as investors feared supply disruptions from one of the world’s most critical energy chokepoints.
Kathleen Brooks, research director at broker XTB, said the drop in oil prices should help support broader markets. “This will ease inflation fears and could also act as a dampener on bond yields, which rose sharply last week, especially at the long end, where 30-year US Treasury yields jumped to their highest level for 19 years,” she said, according to The Guardian.
The decline in crude reflected what CNBC described as investors paring back geopolitical risk premiums after Trump’s statement. The move also came as stock market volatility concerns eased amid August trading, with traders betting that a diplomatic path could prevent further escalation in the Middle East.
Tony Sycamore, a market analyst at investment platform IG, cautioned that momentum could reverse if negotiations stall. “The bigger focus is whether this week turns into a rinse and repeat of last week – with hopes of a deal collapsing as Iran digs in its heels and continues to leverage its control over the strait, potentially through an attack on a US base or a tanker transiting the waterway,” he said.
Sources
- The Guardian — oil price declines, European market rallies, Trump’s announcement, analyst commentary on inflation and bond yields
- Barron’s — stock futures reaction to Trump’s Iran announcement
- CNBC — oil price decline and geopolitical risk premium unwinding
- Trading Economics — Brent and WTI percentage declines on August 3
- Reuters — Trump’s Truth Social statement on Iran talks
