US-Iran Hormuz Deal Cuts Oil 5%, Sends Yields Lower

A potential US-Iran deal to reopen the Strait of Hormuz is unwinding the conflict's risk premium, sending Brent below $80 and yields lower.

Treasury yields fell and Brent crude dropped below $80 a barrel Tuesday as Treasury Secretary Scott Bessent said a US-Iran deal to reopen the Strait of Hormuz could be signed within days, unwinding the geopolitical premium built up during the conflict.

"We are moving towards a more normalized position," Bessent told CNBC, saying an accord to unlock the shipping lane could come as soon as Tuesday or Wednesday.

Brent fell another 5 percent to trade below $80, extending Monday's slide, while West Texas Intermediate dropped 5 percent to about $75 a barrel. The 10-year Treasury yield declined 5 basis points to 4.62 percent. The Dow Jones Industrial Average climbed more than 1,000 points, the S&P 500 advanced 1.79 percent to 7,736.52, and the Nasdaq 100 jumped 3.32 percent to 29,733.16.

The strait carries roughly 20 to 21 percent of global petroleum liquids, making it the world's most consequential energy chokepoint. A signed accord would compress Brent toward the mid-$70s and ease inflation expectations, while a breakdown would snap prices back toward $85 to $95 and re-widen the risk premium.

The emerging framework is not a straightforward bilateral pact. Oman, which has kept working ties with both Washington and Tehran through decades of hostility, is the primary intermediary, with Pakistan facilitating and the United States participating indirectly. A senior Middle East diplomat with direct knowledge of the talks said pressure was being applied on Muscat to accept a temporary framework restoring commercial shipping access.

The interim memorandum of understanding, still short of a ratified treaty, includes a 60-day window during which vessels would transit toll-free while negotiators pursue a long-term settlement. Iranian officials have indicated interest in imposing transit fees after that period. Key terms — mine-clearance timelines, the scope of sanctions relief, and post-60-day toll arrangements — remain under negotiation.

The market is pricing a probability-weighted outcome

The sharpness of Tuesday's decline reveals how much conflict premium had been embedded in energy benchmarks. The partial recovery in the prior session shows traders are not treating deal completion as certain. Secondary indicators worth watching include tanker freight rates, marine insurance premiums, and energy futures volatility, which often move before benchmark prices.

The last time the strait faced a sustained closure threat, during the 2011-12 standoff, oil prices rose 15 to 20 percent within weeks; the 1990-91 Gulf War pushed prices up roughly 70 percent. That history explains why a single statement from a senior US official moved global benchmarks by more than 5 percent in one session.

The inflation and supply chain stakes

The deal's reach extends beyond crude. About one-third of the world's fertilizer transits the strait, and urea prices, which peaked in April, reached a six-month low Monday. The advance GDP price index soared 6.2 percent last week, well above the 4.1 percent estimate, while annual CPI inflation runs at 3.5 percent — a backdrop that keeps the Federal Reserve's easing path in question even as the 10-year yield eases.

The 30-year Treasury yield climbed as high as 5.28 percent last week, its highest since 2007, when the long bond peaked at 5.41 percent. A reopening deal would relieve some of that upward pressure, though the inflation impulse from the war has been a major driver of the recent rise.

The Iranian oil re-entry variable

One of the least-priced elements of any deal is the return of Iranian crude at scale. Iran's pre-sanctions export capacity was about 2.5 million barrels per day, and a return of even part of that volume would shift global supply-demand balances and intensify downward price pressure. Under the reported terms, Iran would be permitted to sell oil freely, a development that would materially reshape supply dynamics if confirmed.

If a formal agreement is signed, Brent could track toward the low-to-mid $70s as the residual premium compresses. If negotiations collapse — triggered by domestic political pressure in Washington or Tehran, or a military incident during the sensitive window — prices would rebound sharply toward $85 to $95 and the risk premium would return to peak levels. For energy and rates markets, the Hormuz situation is a high-conviction binary event with meaningful implications in either direction.

This article is for informational purposes only and does not constitute investment advice.