Oil Whipsaws as Iran Talks Stall

Brent crude dropped nearly 2% Monday after President Trump delayed a planned military strike on Iran , according to Reuters. By Tuesday morning in Asia, prices had fallen to $109.70 per barrel , per OilPrice.com—a sharp reversal from the previous week's rally when tensions spiked. The whipsaw reflects a market caught between geopolitical brinkmanship and the grinding reality of a supply crisis now in its third month. The closure of the Strait of Hormuz has become the largest disruption to world energy supply since the 1970s crisis and the largest in the history of the world oil market , the International Energy Agency confirmed.

The stakes are enormous. The 2026 Hormuz closure has stranded 15.8 million barrels per day , according to analysis by SolAbility. Gulf states and Iraq lose approximately $1.1 billion per day in oil revenue while the strait remains closed —roughly $46 million every hour. Yet market data shows WTI trading at $71.50 per barrel as of Monday afternoon, up just 0.6%—a curious calm given that physical cargoes were reported near $150 per barrel at the crisis peak in March, according to military tracking data. The disconnect between futures and physical markets suggests traders are pricing in an eventual resolution even as the conflict grinds on.

Can Diplomacy Break the Deadlock?

Trump's decision to pause the strike came after what he described as ongoing negotiations, but the reprieve appears fragile. The price for Brent crude climbed 2.9% to settle at $104.21 after Trump said the U.S.-Iran ceasefire was on "life support" , CBS News reported earlier this month. The pattern has repeated throughout the crisis: diplomatic signals send prices down, then hawkish rhetoric or renewed attacks push them back up.

Trump said Friday that he will make a decision over the next few days about lifting sanctions on Chinese oil companies that buy Iranian oil , CNBC reported. The move would be extraordinary—easing restrictions on the very country the U.S. is fighting—but reflects Washington's desperation to secure every available barrel. The White House temporarily eased sanctions on Iran and Russia by issuing waivers, which benefited two U.S. adversaries without bringing prices down , according to the Council on Foreign Relations.

The diplomatic calculus shifted last week when Trump visited Beijing. Trump said he is considering lifting sanctions on Chinese companies that buy Iranian oil, adding that Xi Jinping would like to see the Strait of Hormuz "automatically" opened , CNN reported. But China has its own interests. Beijing has effectively become the release valve for sanctioned oil, and any deal would need to balance U.S. pressure with China's energy security needs.

Who Pays the Price?

India is feeling the squeeze more acutely than most. State fuel traders raised retail prices for the second time in less than a week by the equivalent of $0.0093 per litre , Reuters reported Monday— a third of last week's price hike, which was the first in four years . The increases are modest compared to the underlying shock. Wholesale fuel prices surged in April, with gasoline prices up 32.4% and diesel up 25.19% , The Economic Times reported.

India is the world's third-largest oil importer, with 90 percent of the oil it consumes coming from overseas, and about half of its usual crude supplies transiting the Strait of Hormuz , Al Jazeera noted. The world's third-largest crude importer saw its wholesale inflation jump to 8.3% in April from a year earlier, significantly accelerating from 3.88% annual inflation in March , according to OilPrice.com. The political calculus is delicate: Prime Minister Narendra Modi urged Indians to adopt voluntary austerity measures, calling on them to work from home whenever possible and describing saving fuel as an act of "patriotism" , Al Jazeera reported.

The pain is spreading. Higher oil prices have cost U.S. consumers $45 billion since the Iran war began , OilPrice.com calculated—equivalent to roughly $500 per household. American drivers face the highest Memorial Day gasoline prices in four years, even though the U.S. is less exposed to Hormuz disruptions than Asian buyers.

What About Russia's Energy Pivot?

While the Middle East burns, Russia and China are quietly reshaping the global gas map. Vladimir Putin is travelling to Beijing for talks with Xi Jinping, where he is expected to promote the Power of Siberia 2 gas pipeline project , Bloomberg reported. The timing is no accident. Russia hopes that turmoil in global energy markets caused by the conflict in the Middle East will encourage China to show greater flexibility in negotiations over gas pricing , according to people close to the Russian government.

Power of Siberia 2 is a proposed 2,600-kilometre cross-border gas pipeline designed to transport 50 billion cubic metres of Russian natural gas annually to China through Mongolia , WION reported. Unlike the existing Power of Siberia 1 pipeline, the new route would draw supplies from the Yamal fields in western Siberia, reserves that once largely served European markets . For Russia, the project offers a lifeline after losing most of its European gas business following the Ukraine invasion. For China, it's insurance against maritime disruptions— in the face of renewed conflict around the Strait of Hormuz, where many of China's LNG shipments transit, Russian pipeline gas looks more secure than maritime routes , RFE/RL noted.

But the deal remains elusive. The project has remained stalled over disagreements on pricing , with China previously asking to pay close to Russia's domestic prices, which are heavily subsidized , according to CSIS analysis. Russia wants to agree on gas prices by September , a source close to Gazprom told Bloomberg.

Can AI Keep the Lights On?

The Iran crisis has collided with another energy crunch: the AI boom. Stocks continue to rally amid the AI boom, but the chip sector is scrambling to shore up access to key materials as costs rise , CNBC reported. The confluence is awkward. Tech companies need massive amounts of power for data centers just as geopolitical chaos threatens energy supplies.

Dominion Energy Virginia said in February 2025 that data center firms had requested 40.2 GW of power connections, up from 21.4 GW in July 2024—a dramatic increase reflecting the industry's rapid expansion , S&P Global reported. The AI industry faces supply chain constraints due to a shortage of GPU chip manufacturing facilities, and the chips require rare earth metals and high-grade silicon , which could tighten further if Middle East instability disrupts commodity flows.

China currently accounts for around 99% of global refined gallium supply, and demand for gallium for data centres could reach over 10% of today's supply by 2030 , the IEA warned. The Iran war adds another layer of risk: higher energy costs squeeze data center economics, while supply chain disruptions threaten the rare materials needed for advanced chips.

What Changed This Week

The oil market's mood shifted from panic to cautious optimism as Trump delayed military action, but the underlying crisis remains unresolved. India broke a four-year fuel price freeze twice in seven days, signaling that Asian importers can no longer absorb the cost shock. Putin's Beijing visit puts gas diplomacy front and center, with Russia betting that Middle East chaos will finally push China to sign the Power of Siberia 2 deal. And the AI sector's collision with energy scarcity grew more visible as chip supply chains face pressure from both geopolitical disruption and soaring material costs.

What to Watch

Trump's decision on Chinese sanctions waivers is expected within days and could reshape oil flows if Beijing gains formal access to Iranian crude. The Putin-Xi summit on May 20 will reveal whether gas pricing talks have advanced—watch for any joint statement on Power of Siberia 2 timelines. India's fuel pricing decisions bear watching: another hike would signal that state oil companies can no longer absorb losses, potentially triggering broader inflation. And monitor Brent's spread to physical crude prices: if the gap widens again, it means the market expects the Hormuz closure to drag on far longer than futures traders are pricing in.