Oil prices fell sharply and European stock markets and government bonds rallied on Monday after US President Donald Trump cancelled planned military strikes on Iran and said talks aimed at a Middle East peace deal were set to resume. Brent crude dropped 5% to $83.47 a barrel by lunchtime, having earlier plunged as much as 7.3% to $81.55, while US benchmark West Texas Intermediate fell more than 5% to $79.47 a barrel.
Why did oil prices fall so sharply?
Oil markets had been pricing in heightened geopolitical risk in the Gulf region amid expectations of a US military confrontation with Iran, which supports elevated crude prices due to fears over supply disruption through key shipping routes. When Trump announced the strikes would not go ahead and pointed to a resumption of diplomatic talks, that risk premium unwound quickly, triggering the steep sell-off in both Brent and WTI benchmarks.
Traders said the swift reversal reflected how much of the recent price strength had been driven purely by fear of imminent conflict rather than underlying supply and demand fundamentals.
How did stock and bond markets react?
European equities rallied alongside the drop in energy prices, as investors welcomed the reduced likelihood of a broader regional conflict that could have disrupted global trade and pushed up inflation via higher fuel costs. Government bonds also strengthened, with prices rising as demand increased, reflecting a modest easing of the safe-haven positioning that had built up in recent days on fears of an escalating Middle East crisis.
What happens next for the Iran peace talks?
Attention now turns to whether renewed negotiations can produce a durable de-escalation, since markets remain sensitive to any sign that diplomacy could break down again. Trump’s comments suggested talks aimed at a broader peace settlement were poised to resume, but no formal schedule or details of the negotiations were disclosed, leaving investors watching closely for further developments that could reignite volatility in oil and financial markets.
