Oil prices experienced a significant decline on Sunday as tentative hopes for a peace deal between the United States and Iran emerged, only to be tempered by mixed signals from US President Donald Trump. Brent crude, the global benchmark for oil prices, dropped more than 5 percent. Brent futures for July delivery stood at $97.94 a barrel as of 04:00 GMT.

The development comes amid ongoing efforts to resolve the US-Israel war on Iran, which has significantly disrupted global oil trade. The conflict, which began in late February, led to the effective blockade of the Strait of Hormuz by Iran, impacting approximately one-fifth of the world's oil supply. The US subsequently imposed its own blockade of Iranian ports in mid-April.

President Trump's communications on Sunday painted a complex picture of the negotiations. He stated on social media that talks with Tehran were progressing in an "orderly and constructive manner." However, he also emphasized that officials had been instructed "not to rush into a deal," adding, "Both sides must take their time and get it right. There can be no mistakes!"

These remarks followed a more optimistic announcement from Trump on Saturday, suggesting that a deal had been "largely negotiated," with terms that included the reopening of the vital Strait of Hormuz. The market's reaction highlights the sensitivity of oil prices to developments in the region, with expectations of a substantial increase in supply if the waterway reopens.

Analysts suggest that the market remains on edge, anticipating the full restoration of oil flow even after a deal is finalized. June Goh, a senior oil market analyst at Sparta in Singapore, noted that "10-11 million barrels per day of crude oil continue to be shut-in for every day the Strait of Hormuz remains shut." Goh also estimated that it could take "about three to six months required to get everything back to status quo, including time to bring production and refineries back online" after an agreement is reached.

Meanwhile, Japan's benchmark stock index, the Nikkei 225, surged more than 3 percent in morning trading, reaching an all-time high after closing at a record peak on Friday. This stock market reaction reflects investor optimism about the potential de-escalation of regional tensions and its positive economic implications.

Trump reiterated that the US blockade of Iranian ports would remain "in full force and effect until an agreement is reached, certified, and signed," underscoring the conditions for any potential lifting of sanctions and maritime restrictions.

Recent reports from UN economists forecast global GDP to grow 2.5 percent in 2026 and 2.8 percent in 2027, with the ongoing Middle East crisis cited as a factor impacting these projections. The resolution of the conflict and the reopening of key shipping routes like the Strait of Hormuz are seen as crucial for stabilizing global economic forecasts.