Draft US-Iran Deal May Reopen Strait of Hormuz; Oil Drops 7%

A U.S.-Iran draft agreement expected to reopen the Strait of Hormuz within 30 days prompted a sharp selloff in energy and a weaker dollar during the Memorial Day trading session. West Texas Intermediate crude fell about 7% as risk premia tied to the conflict eased. Trading volumes were lighter than normal because many markets were closed for the holiday.

Institutional investors are expecting a formal deal during the current ceasefire extension. The Strait of Hormuz handles roughly one-fifth of seaborne oil traffic; a reopening would reduce the risk of supply disruptions that had driven higher oil prices and shipping and insurance premiums.

WTI crude declined roughly 7% during the holiday session, while the U.S. dollar slipped as safe-haven demand and the war-related inflation premium weakened. Commodity-focused currencies and some equity indices registered gains on the sentiment shift.

Elior Manier, a market analyst at OANDA, wrote that ‘the draft agreement provided a major boost to markets and the expectation that the Strait of Hormuz will reopen within 30 days has driven a fast correction in energy prices.'

Market participants are watching for official statements and confirmations of the timeline when full trading resumes. Analysts expect higher volumes and clearer price direction as traders return and digest the diplomatic developments.