Oil prices tumbled below $100 a barrel on Monday before edging back up on Tuesday, as investors weighed tentative progress in US-Iran peace negotiations against continued US military strikes in the region. Brent crude futures fell as low as $97.43 a barrel on Monday — a drop of roughly 6% and the lowest level in two weeks — before rising more than 1% in early Asian trade on Tuesday to around $97.32, as optimism over a swift deal gave way to fresh uncertainty.

At the heart of the market volatility is the Strait of Hormuz, the narrow waterway between Iran and the Arabian Peninsula through which a significant share of the world's seaborne oil and liquefied natural gas passes. The strait has been effectively closed since the US and Israel launched missile strikes on Tehran on 28 February, triggering a near three-month conflict that has sent energy prices soaring from around $70 a barrel. Iran's top negotiator and foreign minister travelled to Doha, Qatar's capital, for talks mediated by Qatari officials, and separate reporting indicated both sides were discussing a plan to reopen the strait approximately 30 days after any ceasefire agreement. However, an Iranian government spokesperson cautioned that a deal was "not imminent", and US forces conducted further strikes in southern Iran on Monday against what they described as defensive targets, including boats attempting to lay mines.

Analysts are urging caution. Warren Patterson, head of commodities strategy at ING, noted that talks have collapsed before and that markets would likely be slow to fully price in a resolution. Even if an agreement is reached and the strait reopens, analysts warn that restoring normal oil flows could take months while damaged energy infrastructure in Qatar and elsewhere is repaired. UBS analyst Giovanni Staunovo said the key factor to watch remains actual physical oil flows, which are still heavily restricted. Two tankers carrying liquefied natural gas were observed leaving the strait on Monday, and a supertanker carrying Iraqi crude exited the Gulf over the weekend after being stranded for nearly three months — early signs of movement, but far from a return to normalcy.

The broader economic stakes are considerable. Higher oil and gas prices have stoked inflation fears worldwide, pushing central banks that had been expected to cut interest rates toward raising them instead. Markets now anticipate the Bank of England will raise rates twice this year. Gold climbed sharply on Monday to $4,574 an ounce, reflecting ongoing investor anxiety, while stock markets were more buoyant — Japan's Nikkei rose nearly 3% on Monday, though it slipped slightly on Tuesday, and European and US equity futures were mixed. Bonds remained broadly steady after a sharp sell-off last week tied to inflation concerns.

The coming days are likely to bring further swings. As Commonwealth Bank of Australia strategist Joseph Capurso put it: "The market wants to believe that it's all going to end soon, because the war not ending is quite bad for the world economy." But with key sticking points unresolved and military operations still ongoing, a durable settlement — and the energy price relief that would accompany it — remains some distance away.