Oil prices experienced a decline on Monday morning as President Donald Trump announced the United States would refrain from targeting Iran’s energy infrastructure due to ongoing positive discussions between the two nations. The cost of a barrel of West Texas Intermediate, the primary North American benchmark, dropped by over nine percent to trade below $90 US, while stock markets saw an uptick at the opening bell.
By the end of the trading day, the S&P 500 had surged by 74.52 points to reach 6,581.00. The Dow rose by 631.00 points, or 1.4 percent, to 46,208.47, and the Nasdaq composite climbed by 299.15 points, or 1.4 percent, to 21,946.76. Similarly, the S&P/TSX composite index saw a gain of 566.40 points, closing at 31,883.81.
Trump explained that he had postponed plans to strike Iranian power plants for five days following what he described as fruitful conversations aimed at resolving hostilities in the Middle East. Oil prices had surged by approximately 50 percent since the start of the conflict in the region.
Contrary to his earlier statements over the weekend, where he hinted at an escalation, Trump warned on Truth Social that if Iran did not allow unrestricted passage through the Strait of Hormuz within 48 hours, the U.S. military would target Iranian power facilities, commencing with the largest ones.
In response to Trump’s remarks, the Islamic Revolutionary Guard Corps, via Iranian media, threatened to completely block the Strait of Hormuz should the U.S. carry out any strikes on Iranian energy installations. Trump has outlined military objectives for the conflict with Iran, including dismantling Iran’s military capabilities, defense infrastructure, and nuclear weapons program, while also safeguarding American allies in the region.
Energy prices have surged in recent weeks as Iran restricted access to the Strait of Hormuz, a critical passage for exporting 20 percent of the world’s oil, in addition to natural gas and other commodities. Analysts at energy consulting firm Wood Mackenzie have suggested that oil prices could reach $200 per barrel in 2026 if disruptions in Gulf exports persist.
Once the conflict is resolved, it may take several months for energy markets to stabilize, according to Kurt Barrow, an oil and fuels analyst at S&P Global. Barrow highlighted that the energy crisis is transitioning into a demand and availability issue, with a shortfall of approximately 15 million barrels per day, not only in crude oil but also in jet fuel, diesel, and gasoline.
The North American oil industry faces uncertainty, with potential repercussions if prices remain high for extended periods, leading to decreased oil demand during a global economic downturn. Kevin Krausert, CEO of Avatar Innovations and a former Alberta drilling executive, expressed caution about the industry’s reaction to escalating oil prices, emphasizing the need for responsibility and preparedness amidst the current challenges.
Trump’s social media announcement coincided with the fourth week of the war with Iran, underscoring the ongoing tensions and complexities in the region.