Global oil prices fell sharply on Monday after U.S. President Donald Trump announced that negotiations with Iran would resume and said planned military strikes against the Islamic Republic had been suspended, easing fears of a broader regional conflict that could disrupt global energy supplies.

International benchmark Brent crude dropped more than 5%, trading at around $83.40 per barrel in early trading, while U.S. benchmark West Texas Intermediate (WTI) fell approximately 6% to $79.60 per barrel.

The decline came after weeks of elevated prices driven by heightened geopolitical tensions between Washington and Tehran, which had raised concerns over the security of oil exports from the Middle East.

Speaking aboard Air Force One on Sunday, Trump said a new round of negotiations with Iran would begin on Monday, adding that planned U.S. military strikes had been put on hold following diplomatic efforts and appeals from key regional partners.

The announcement prompted investors to reassess the risk of a major disruption to crude supplies from the Gulf, resulting in a broad sell-off across energy markets.

Analysts said the renewed diplomatic initiative reduced the immediate likelihood of further military escalation, although markets remain highly sensitive to developments surrounding the U.S.-Iran talks.

Oil prices had surged by roughly 25% during July as hostilities between the United States and Iran intensified, fueling fears that shipping through the Strait of Hormuz—a vital artery for global energy trade—could face prolonged disruption.

The strategic waterway handles a significant share of the world's seaborne crude oil and liquefied natural gas exports, making any threat to navigation a major driver of global energy prices.

With negotiations now set to resume, concerns over prolonged restrictions on maritime traffic have eased, although shipping companies and energy traders continue to monitor the situation closely.

Adding further downward pressure to prices, major OPEC+ producers reaffirmed plans to continue the gradual restoration of oil production that had been voluntarily curtailed in 2023.

The producer alliance said it would retain the flexibility to adjust output in response to market conditions while closely monitoring geopolitical developments and the progress of U.S.-Iran negotiations.

Market participants said expectations of higher supplies, combined with reduced geopolitical risk, contributed to Monday's decline in crude prices.

Despite the sharp fall, analysts warned that volatility is likely to persist as investors await concrete progress in the diplomatic talks between Washington and Tehran.

Any setback in negotiations or renewed military confrontation could quickly reverse the latest price decline, given the Middle East's central role in global oil production and exports.

Investors are also watching upcoming economic data from major consuming nations, as well as future decisions by OPEC+, for further indications of the direction of global energy demand and supply in the months ahead. (ILKHA)