International oil prices fell sharply for a fifth consecutive trading day on Tuesday, reaching a two-week low as markets digested diplomatic signals that Iran may reopen the Strait of Hormuz and news that Saudi Arabia had restarted its critical East-West pipeline. Data showed Brent crude futures briefly dipped below $98 per barrel during intraday trading, while US WTI crude fell below $90 per barrel. At the time of writing, the Brent November contract was trading at $98.80 per barrel, with the WTI October contract at $90.68 per barrel.
According to reports, Iran has proposed reopening the Strait of Hormuz within seven days if the United States takes preliminary steps to ease military pressure. However, Iran's semi-official Fars News Agency subsequently stated that "Iranian sources say these reports are unreliable and untrue." Reports indicated that Iran's delegation attending the United Nations General Assembly has been granted full authority to seek the restoration of diplomatic ties with Washington. This is seen as the latest sign of potential re-engagement between Washington and Tehran over the standoff at the Strait of Hormuz.
US President Donald Trump held a series of meetings with world leaders on Tuesday on the sidelines of the UN General Assembly in New York and signaled a willingness to meet with Iranian President Masoud Pezeshkian, which had already eased market concerns to some extent. When asked about a potential meeting between the two leaders, US Secretary of State Marco Rubio said: "I don't think there are any arrangements in place at this point." He added that Washington is "open to such a meeting." However, both governments still exchanged threats over the weekend.
The US continued to apply pressure as well, with Treasury Secretary Scott Bessent stating Monday that Washington is "putting unprecedented pressure on Iran," citing new sanctions authority covering aviation, maritime activities, cryptocurrency, and gold. Bessent also drew a direct link between the Iran conflict and financial markets, noting an unusually high correlation between long-term Treasury yields and crude oil and refining margins. He predicted that once the conflict ends, oil supply will increase and interest rates will decline.
Another factor pushing oil prices lower was Saudi Arabia's East-West pipeline, which effectively serves as an alternative route bypassing the Strait of Hormuz. Since the US-Israel war with Iran disrupted oil flows through the strait, the OPEC leader has been using the pipeline to divert approximately 4 million barrels per day, roughly 4% of global supply, to the Red Sea port of Yanbu. It was previously reported that drone attacks had forced Saudi Arabia to shut down the East-West pipeline on September 13, halting crude loading at the Yanbu port.
Speaking about oil prices, Rubio said: "If you look at the gains of the last two weeks, the vast majority of them were because the Houthis attacked the Saudi pipeline and the Saudis had to shut it down." He added: "There is still oil in the system, but the market is pricing in the expectation that Saudi oil will be reduced. This is also the issue we are dealing with."
According to three sources familiar with the matter, Saudi Arabia has restarted the pipeline and may resume exports from Yanbu later Tuesday. Two sources said the pipeline was pumping at low rates after restart. One source said Aramco was seeking to restore pumping rates to 4 million barrels per day, while a security source said full recovery could take weeks. One source also noted that the pipeline would resume supplying crude to Aramco's refinery on the Red Sea coast, with a cargo planned for loading at Yanbu on Tuesday destined for China. Two other trade sources said traders were preparing for Saudi crude loadings by diverting tankers to Egypt's Mediterranean port of Said for ship-to-ship transfers and to Sidi Kerir. Aramco did not immediately respond to a request for comment.
Macro and Market Reaction
Since the US and Israel went to war with Iran on February 28, vessel traffic through the Strait of Hormuz has nearly come to a standstill. MarineTraffic data showed daily traffic of no more than 20 ships last week. Before the war, the strait handled approximately 125 large commercial vessels per day, carrying about one-fifth of global oil and LNG supplies. Kpler data showed 17 commodity ships passed through the strait over the weekend, down from 37 in the previous week.
Both major crude benchmarks have risen more than 60% since the start of the year. US retail gasoline prices reached $4.47 per gallon on Tuesday, up 50% since the Iran war began. Diesel prices have also surged sharply, with the US national average hitting a record high of $6.52 per gallon on Tuesday, up 82% year-to-date, driven in part by intensified airstrikes between Russia and Ukraine. As a result, Trump also planned to hold talks with Ukrainian President Volodymyr Zelensky on Tuesday to push for an energy truce.
Meanwhile, US bond yields declined as oil prices retreated. The 10-year Treasury yield fell to 4.92% at one point, down from a high of 5.04% a week ago, which was the highest since 2007. The 30-year Treasury yield dipped to 5.25% on Tuesday, after rising to 5.4% last week, also the highest since 2007. Global equities advanced, with the European Stoxx 600 index up more than 0.5%, while Germany's DAX and France's CAC 40 also gained. US stock index futures edged higher, with S&P 500 futures up 0.13% while Nasdaq 100 futures slipped 0.03%. Both major indices had posted their best single-day performances since August on Monday.
Chicago Fed President Austan Goolsbee emphasized Monday that oil is part of the inflation problem. He argued that if supply shocks persistently push inflation above the Fed's 2% target, policymakers cannot "look the other way" indefinitely, although the policy response may be less aggressive than in a demand-driven overheating scenario.