Oil Drops Nearly 5% as US-Iran Conflict Enters Lull

Wide gaps remain, clouding prospects for a ceasefire or an end to the war

Crude declines in Asian trading

Some remain pessimistic about a quick resolution to Strait of Hormuz shipping

The military conflict between the US and Iran has entered a lull after two weeks. Back-channel diplomacy has resumed, but a ceasefire or a formal end to the fighting remains uncertain because the two sides are still far apart. Oil prices fell as tensions in the Middle East eased.

The Wall Street Journal reported on July 27 that President Donald Trump ordered a halt to airstrikes on Iran on July 24. The US military had hit Iranian military targets for 13 consecutive days from July 11 to July 23 after Iran's Islamic Revolutionary Guard Corps resumed attacks on civilian vessels passing through the Strait of Hormuz. Mike Waltz, the US ambassador to the United Nations, told NBC on July 26 that the president was leaving room for talks. Negotiations are taking place at every level, from working-level officials to senior leadership, he added.

Iran also said it had fully suspended retaliatory attacks after the US halted its airstrikes. Talks are also underway on safe passage for civilian vessels in the Strait of Hormuz. On July 27, Iranian Foreign Ministry spokesman Esmail Baghaei said several rounds of vice foreign minister-level talks had been held on shared principles and operational mechanisms for managing safe maritime transit for Iranian and Omani vessels.

The current phase is not expected to lead to a revived memorandum of understanding on ending the war or a complete end to the conflict. A senior Iranian source told Reuters the dominant view was that the move reflected tactical judgment rather than a sincere step toward peace.

Oil prices fell nearly 5% intraday on July 27 as Middle East tensions eased. Brent crude for September delivery dropped 4.9% to $92.02 a barrel in early Asian trading. West Texas Intermediate crude also fell 4.9% to $84.95.

Investors remain cautious about calling a sustained downturn in oil. Helima Croft, global head of commodity strategy at RBC Capital Markets, said shipping through the Strait of Hormuz was unlikely to normalize anytime soon and that disruptions in the Red Sea had added to the risk. A halt in fighting does not mean the waterway will reopen, she said.

Hwang Jung-su, New York correspondent, Korea Economic Daily hjs@hankyung.com