Oil prices moved lower on Friday after reports suggested that Iran and Oman were working with Gulf states on a possible agreement to reopen commercial shipping through the Strait of Hormuz.
Despite the decline, crude remained on track for strong weekly gains as tensions between the United States and Iran continued to support a significant geopolitical risk premium.
Brent and WTI Pull Back After Strong Rally
Brent crude futures fell around 1% to $106.62 per barrel, while West Texas Intermediate crude futures declined roughly 0.7% to $101.78.
Earlier in the session, Brent climbed as high as $109.97 per barrel, its highest level since early May.
Both Brent and WTI were still up more than 11% for the week, reflecting persistent concerns over supply disruptions in the Middle East.
Iran and Gulf States Reportedly Discuss Hormuz Deal
According to a Financial Times report, Gulf foreign ministers are expected to meet with Iran’s foreign minister on Monday to discuss commercial shipping through the Strait of Hormuz.
The talks are reportedly being organized by Oman and are expected to take place in the coastal city of Salalah.
If the meeting goes ahead, it could mark one of the most significant diplomatic contacts between Iran and Gulf states since the latest phase of regional conflict began.
Iran and Oman had already indicated in August that discussions were taking place over commercial shipping arrangements in the Strait of Hormuz.
Strait of Hormuz Remains Critical for Oil Markets
The Strait of Hormuz is one of the world’s most important oil shipping routes.
Any prolonged disruption can quickly affect global crude supplies and increase volatility in oil markets.
That is why reports of a possible diplomatic agreement triggered a pullback in crude prices after their recent surge.
However, uncertainty remains high because the wider U.S.-Iran conflict has shown little sign of a lasting resolution.
U.S.-Iran Conflict Keeps Oil Prices Elevated
Oil prices moved above $100 per barrel earlier in the week after another escalation in the conflict.
Iran said it had attacked multiple vessels near the Strait of Hormuz, while the United States said it responded by targeting Iranian tankers.
The developments represented some of the most serious shipping-related attacks seen in recent months.
As a result, traders continued to price in the possibility of further disruptions to Middle Eastern oil exports.
Houthi Activity Adds Another Supply Risk
Concerns have also increased around the Bab el-Mandeb Strait, another major shipping route connecting the Red Sea with the Gulf of Aden.
Yemen’s Iran-backed Houthi group has reportedly increased its military activity in the region.
Reports indicated that the group had gained greater control around the port city of Mocha, potentially strengthening its influence over shipping through Bab el-Mandeb.
The Houthis have also declared a naval blockade against Saudi Arabia and have been linked to attacks on ships and Saudi energy infrastructure.
Saudi Oil Infrastructure Comes Under Pressure
Reports on Friday suggested that attacks may also have affected Saudi Arabia’s East-West oil pipeline.
Several fires were reportedly seen around the facility following the incident.
Any significant disruption to Saudi energy infrastructure could add further pressure to global oil markets.
Combined with instability around the Strait of Hormuz, threats to Bab el-Mandeb would create risks around two of the region’s most important energy shipping routes.
Geopolitical Risk Premium Remains High
The possibility of simultaneous disruption around Hormuz and Bab el-Mandeb has encouraged traders to maintain a substantial geopolitical risk premium in crude prices.
This helps explain why oil remains sharply higher for the week despite Friday’s decline.
Any credible diplomatic progress could reduce some of that risk premium.
However, renewed attacks or worsening tensions could quickly send oil prices higher again.
Trump Comments Add to Uncertainty
U.S. President Donald Trump has said he expects the conflict with Iran to end after the November midterm elections.
However, separate media reports have suggested that some U.S. officials expect the conflict to remain unresolved for much longer.
The contrasting views highlight the uncertainty surrounding the duration of the war and its potential impact on global energy markets.
Oil Traders Focus on Hormuz Talks
For now, attention is likely to remain on the reported Iran-Oman initiative and whether Gulf states can reach an agreement that improves the flow of commercial shipping through the Strait of Hormuz.
A successful deal could ease some supply concerns and reduce pressure on crude prices.
However, continued military escalation would likely keep Brent and WTI prices elevated and maintain volatility across global energy markets.
