Iran, July 25 : Global crude oil prices fell sharply on Friday after reports emerged that China had stepped up diplomatic efforts to revive stalled peace negotiations between the United States and Iran. The prospect of renewed dialogue eased immediate fears of a prolonged military confrontation, triggering profit booking in oil markets. Despite the day’s decline, both major crude benchmarks remained on course for their strongest weekly gains in months as investors continued to assess the impact of escalating tensions across the Middle East.
Brent crude futures settled at $96.78 per barrel, falling $3.91, or 3.88%, after crossing the $100 mark during the previous trading session for the first time since May. Even with Friday’s losses, Brent posted an impressive weekly gain of nearly 10%, reflecting persistent concerns over global energy supplies.
U.S. West Texas Intermediate (WTI) crude also moved lower, closing at $89.31 per barrel, down $2.88, or 3.12%. The American benchmark remained set for a weekly increase of more than 8%, supported by fears that the conflict in the Gulf region could disrupt international oil flows.
The latest decline followed reports that Beijing had launched a fresh diplomatic initiative aimed at bringing Washington and Tehran back to the negotiating table. Investors viewed the development as a possible step toward reducing regional instability, prompting a pullback after several sessions of strong gains.
Market participants noted that sentiment in the energy sector remains highly sensitive to any indication of progress toward a peaceful resolution. The possibility of de-escalation encouraged traders to lock in profits accumulated during the recent rally.
John Kilduff, partner at Again Capital, said oil markets respond quickly to even the smallest signs of diplomatic progress because investors are eager to avoid pricing in a prolonged conflict.
Although hopes for negotiations weighed on prices, geopolitical risks remained elevated. The United States and Iran have exchanged missile strikes in recent days, intensifying fears that military escalation could threaten critical energy infrastructure and shipping routes across the Middle East.
The Strait of Hormuz, one of the world’s most important oil transit corridors, has witnessed a sharp reduction in shipping traffic as security concerns persist. At the same time, attacks on commercial vessels in the Red Sea by Yemen’s Houthi rebels have added another layer of uncertainty to global energy markets.
Analysts said the overall supply outlook remains fragile despite Friday’s price correction.
Phil Flynn, senior analyst at Price Futures Group, noted that global crude inventories remain relatively tight, meaning market conditions could change rapidly if the geopolitical situation worsens.
Fresh concerns also emerged after U.S. President Donald Trump warned Iran and the Iran-backed Houthis of severe military retaliation following attacks on two Saudi oil tankers in the Red Sea. The warning reinforced concerns that further military action could spread across key energy-producing regions.
Iran has reportedly encouraged the Houthis to consider closing the Bab el-Mandeb Strait if attacks on Iranian infrastructure continue. The strategic waterway serves as one of the world’s busiest maritime routes for crude oil and energy shipments after the Strait of Hormuz.
The Houthis have also announced a naval blockade targeting Saudi Arabia, forcing the kingdom to increasingly rely on pipeline networks to transport crude while avoiding vulnerable sea routes.
Despite heightened tensions, preliminary shipping data indicated that vessel movement has not completely halted. According to maritime tracking firm Kpler, a limited number of oil tankers continued passing through the Strait of Hormuz over the past several days, while traffic through the Bab el-Mandeb corridor showed signs of recovery.
UBS analyst Giovanni Staunovo observed that commercial shipping remains active, suggesting that fears of a total maritime blockade have not materialized so far.
Financial institutions continue to warn that prolonged disruptions could significantly increase oil prices. Analysts at JPMorgan estimated that every additional month of supply interruptions could lift Brent crude by $7 to $8 per barrel. Should disruptions continue for three months, average Brent prices could climb to approximately $114 per barrel, placing additional inflationary pressure on economies worldwide.
Adding to supply concerns, Russia announced that its military carried out overnight strikes on three Ukrainian ports, targeting infrastructure used for cargo handling and fuel storage. The attacks raised fresh questions about the stability of energy exports from the Black Sea region.
Meanwhile, Kazakhstan reported temporary reductions in oil production after suspected Ukrainian drone attacks forced the closure of the country’s primary Black Sea oil export terminal. The disruption further highlighted how conflicts beyond the Middle East continue to pose risks to global energy supplies.
While China’s diplomatic initiative provided temporary relief to financial markets, analysts believe crude prices will remain highly volatile until there is greater clarity on the geopolitical situation. Investors are expected to closely monitor diplomatic developments, military activity, shipping conditions, and supply data in the coming weeks, as any significant escalation or breakthrough could quickly reshape the outlook for global oil markets.