Explained: What Is Driving the Sharp Decline in Global Oil Prices?

Global oil prices have retreated to levels seen before the recent U.S.-Iran conflict, with Brent crude falling to around USD 72 per barrel on Thursday as concerns over supply disruptions in the Middle East continued to ease.

The decline follows a sharp 4 per cent drop in the previous trading session, effectively erasing much of the risk premium that had been built into crude prices during the conflict. Brent crude returned to its closing level from before tensions escalated between the United States, Israel and Iran.

At the time of writing, crude oil was trading at USD 69.20 per barrel, down 1.18 per cent. Brent crude stood at USD 72.28 per barrel, while West Texas Intermediate (WTI) crude was trading at USD 69.15 per barrel, down 1.69 per cent. On Wednesday alone, Brent and WTI each fell by nearly USD 3 as market concerns over supply shortages subsided.

Strait of Hormuz Operations Begin Returning to Normal

A major factor behind the decline in oil prices has been the gradual normalization of shipping activity through the Strait of Hormuz, one of the world's most important energy transit routes.

Following an initial agreement aimed at ending the U.S.-Israeli conflict with Iran, tankers that had been stranded in the region have begun exiting the strait, easing fears of prolonged disruptions to global oil supplies.

The improvement in maritime traffic has reassured traders who had worried that any extended blockage could significantly impact global energy markets.

Seafarer Evacuation Efforts Signal Reduced Tensions

Oil markets also found relief after the International Maritime Organization announced on Tuesday that Iran and Oman would coordinate a large-scale evacuation of more than 11,000 stranded seafarers through the Strait of Hormuz.

The move was viewed as another indication that regional tensions were beginning to ease and that shipping operations were gradually stabilizing.

U.S. Says Oil Flows Near Pre-War Levels

Speaking at a forum on Wednesday, U.S. Energy Secretary Chris Wright said oil shipments through the Strait of Hormuz had almost returned to normal.

"Oil flows through the Strait of Hormuz had nearly returned to pre-war levels following the Iran conflict,” Wright said.

He noted that at least 20 million barrels had moved through the waterway in the previous 24 hours.

"A full return to normal operations could take a few weeks, as the waterway still needs to be cleared of mines,” he added.

The comments reinforced market expectations that supply disruptions would be temporary rather than long-lasting.

Sanctions Relief and Rising Exports Add to Supply Outlook

Adding further downward pressure on prices, the United States recently provided temporary relief from sanctions on Iranian oil and petrochemical exports, raising expectations of additional crude entering global markets.

Shipping data has also pointed to stronger export activity from the region. Maritime intelligence firm Windward reported on X that 6.79 million barrels departed the Middle East Gulf during the week ending June 15, marking the highest weekly volume since May 1.

The combination of recovering shipping activity, improving regional stability and expectations of increased supply has helped pull oil prices lower, reversing gains recorded during the height of the conflict.

What It Means for Global Markets

Lower oil prices are generally viewed as positive for major oil-importing countries, including India, as they help reduce import costs, ease inflationary pressures and improve fiscal balances.

For investors, the retreat in crude prices signals that markets are increasingly confident that the worst-case supply disruption scenarios linked to the Middle East conflict are unlikely to materialize, at least in the near term.

However, analysts caution that the Strait of Hormuz remains a sensitive geopolitical chokepoint, meaning any renewed escalation in the region could quickly push prices higher once again.

(With inputs from ANI)