The fragile calm between Washington and Tehran just cracked open again. Oil prices surged on Monday after a weekend of diplomatic failure left the world’s most important energy chokepoint firmly in dispute.
Brent crude jumped more than 2% to around $106.99 per barrel. US crude followed, climbing nearly 1% to $95.23. Why? Because the second round of US-Iran ceasefire talks in Pakistan completely fell apart before they even started.
Here’s what happened. President Trump cancelled a planned trip by his envoys — Steve Witkoff and Jared Kushner — to Islamabad on Saturday. The reason? Iran’s Foreign Minister Abbas Araghchi had already left Pakistan without any direct engagement with the American side.
Trump blamed what he called “tremendous infighting and confusion” within Tehran’s leadership.
It’s hard to overstate what’s at stake here. The Strait of Hormuz, the narrow waterway at the mouth of the Persian Gulf, normally carries about one-fifth of the world’s traded oil and natural gas. Right now, it’s barely functioning.
On Saturday, just 19 commercial vessels transited the strait, according to maritime intelligence platform Windward. That’s a fraction of normal activity. The International Energy Agency has called this the “largest supply disruption in the history of the global oil market.”
Goldman Sachs responded on Monday by raising its Brent crude forecast to $90 per barrel by late 2026 — up from $80 — citing persistent Gulf disruptions. The bank estimates global inventories are drawing down at a staggering 11 to 12 million barrels per day.
The IEA’s latest Oil Market Report paints an even starker picture. Shipments through the strait averaged just 3.8 million barrels per day in early April, compared to more than 20 million barrels per day in February before the crisis erupted.
So is there any hope for a deal?
Iran has floated a new proposal. Passed to Washington through Pakistani mediators, the plan offers to reopen the Strait of Hormuz and end the war — but with one major catch. Tehran wants to push nuclear negotiations to a later, unspecified date.
That’s a hard sell for the White House. Trump has repeatedly insisted that denying Iran nuclear weapons capability was a primary reason for going to war. Accepting a deal that sidesteps the nuclear issue entirely would remove his biggest leverage.
A White House spokesperson told Axios: “The United States holds the cards and will only make a deal that puts the American people first.”
Meanwhile, Araghchi has been on a whirlwind diplomatic tour. After stops in Islamabad and Muscat, Oman, he arrived in Saint Petersburg on Monday to meet Russian President Vladimir Putin. Tehran is clearly looking for allies who can help break the impasse.
The ripple effects extend far beyond the oil market. The World Economic Forum has flagged disruptions to at least nine non-oil commodities, including aluminum, helium, methanol, and fertilizer. Nearly half of the world’s seaborne sulfur trade passes through the strait.
And the food supply chain? It’s already feeling the squeeze. The Persian Gulf produces roughly 46% of globally traded urea, the world’s most widely used nitrogen fertilizer. Urea prices have surged 50% since the war began in late February, threatening planting seasons across the Northern Hemisphere.
LNG markets aren’t faring much better. Asian spot prices for liquefied natural gas have spiked over 140% after Iranian strikes damaged Qatar’s Ras Laffan complex in March, knocking out 17% of the country’s LNG production capacity. Analysts estimate full repairs could take three to five years.
What about the broader economy?
Stock markets, surprisingly, haven’t panicked. Asian indices opened higher on Monday, with Japan’s Nikkei 225 and South Korea’s KOSPI both gaining ground. The S&P 500 is still up over 4% year-to-date, with investors apparently betting on a quick resolution.
But that optimism could be fragile. The IEA now projects global oil demand will decline by 80,000 barrels per day in 2026, a sharp reversal from growth forecasts issued just weeks earlier. If the strait stays restricted, prices could climb much higher.
Some traders have even floated the once-unthinkable figure of $200 per barrel.
Trump is expected to hold a Situation Room meeting on Iran with his top national security team. The agenda? Reviewing Iran’s proposal and mapping out next steps. It’s a pivotal moment.
The bottom line is this: every day the Strait of Hormuz remains contested, global energy security deteriorates further. Oil prices don’t just reflect barrels and pipelines — they reflect confidence. And right now, confidence in a diplomatic breakthrough is running dangerously thin.