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Oil prices pulled back Tuesday, snapping a surge fueled by one of the most severe supply disruptions in history, as fragile hopes for renewed U.S.-Iran talks briefly eased fears of a prolonged global energy crisis.

Brent crude futures slipped 62 cents, or about 0.6%, to $98.74 by 0828 GMT. U.S. West Texas Intermediate (WTI) crude dropped more sharply, falling $2.30, or 2.3%, to $96.78.

The decline comes after a dramatic rally in the previous session, when Brent surged more than 4% and WTI nearly 3% following the U.S. military’s move to blockade Iran’s ports. That escalation had already driven oil prices up an astonishing 50% over the past month, marking a record-breaking spike that rattled global markets.

Market Whiplash as Supply Crisis Meets Diplomatic Hopes

Despite the pullback, analysts warn the dip may be misleading.

"While talk about the resumption of U.S.-Iran talks put downward pressure on prices, the move lower ignores the loss of physical barrels of oil that are not moving," said PVM Oil Associates analyst Tamas Varga.

At the heart of the crisis is the Strait of Hormuz, a critical chokepoint for global energy flows. Attacks on infrastructure and Iran’s effective closure of the waterway have triggered what the International Energy Agency (IEA) describes as the largest oil supply disruption ever recorded.

According to the IEA’s latest monthly report, a staggering 10.1 million barrels per day were lost in March alone.

Blockade Expands, Tensions Deepen

The situation escalated further Monday when the U.S. military announced that its blockade would stretch beyond the Strait of Hormuz into the Gulf of Oman and the Arabian Sea. Early signs of disruption quickly followed, with ship-tracking data showing two vessels turning back as the blockade took effect.

Notably, NATO allies including Britain and France declined to participate, instead urging for the immediate reopening of the strategic waterway.

Iran responded with sharp threats, warning it could target ports in Gulf nations after weekend negotiations in Islamabad collapsed. Under normal conditions, the strait handles roughly 20% of the world’s oil and gas supply, making any disruption a direct threat to global energy security.

Mixed Signals on the Water

Even amid rising tensions, there were signs of selective movement. Shipping data showed three Iran-linked tankers entering the Gulf and being allowed passage, as their destinations were not Iranian ports.

This uneven enforcement highlights the complexity of the blockade and the fragile balance between military pressure and economic necessity.

Talks May Resume, but Risks Remain High

There are growing indications that diplomacy may not be over. Five sources told Reuters that U.S. and Iranian negotiating teams could return to Islamabad later this week. A U.S. official confirmed ongoing engagement efforts, while Pakistani Prime Minister Shehbaz Sharif said attempts to broker a resolution are still underway.

Yet the market remains on edge.

"In case talks between the adversaries fail to bear fruit, even revisiting the March highs cannot be ruled out as the decline in global oil inventories might spill into the third quarter and beyond," Varga warned.

Demand and Supply Outlook Darkens

Adding to the uncertainty, the IEA sharply revised its forecasts, signaling deeper trouble ahead. Global oil demand is now expected to fall by 80,000 barrels per day in 2026, while supply is projected to decline by 1.5 million barrels per day in the same year.

The combination of shrinking supply, weakening demand, and geopolitical instability paints a volatile picture for the months ahead.

For now, markets are clinging to the possibility of diplomacy. But with tensions still high and millions of barrels offline, the risk of another sharp price surge remains dangerously real.