Crude oil futures advanced on Friday as deepening uncertainty over the durability of a US-Iran ceasefire threatened to unwind weeks of price declines. The unexpected cancellation of diplomatic talks in Switzerland, coupled with intensifying Israeli military operations against Hezbollah in Lebanon, injected fresh volatility into energy markets already struggling with conflicting signals about Middle East stability. Brent crude climbed 51 cents to $80.36 per barrel, gaining 0.64%, while West Texas Intermediate crude rose more sharply at $77.88, up 1.7%, as traders reassessed the sustainability of a tentative peace framework signed earlier in the week.
The cancellation of scheduled negotiations between American and Iranian delegations marked a significant setback for efforts to cement what was announced as an interim accord to conclude their months-long conflict. Vice President JD Vance withdrew from travel plans to attend the Switzerland discussions, signalling fractured consensus within the incoming US administration about the terms and viability of any comprehensive settlement. This diplomatic stumble arrives at a critical juncture when energy markets desperately need clarity about whether Middle East hostilities will genuinely de-escalate or whether recent peace declarations represent merely a temporary pause before confrontation resumes.
Despite Friday's gains, both benchmark contracts remained on track for substantial weekly losses of approximately 8%, reflecting the reality that earlier this week, oil touched its lowest levels since early March. This collapse in prices followed the signing of the tentative agreement, when multiple tankers—including three Saudi-flagged vessels transporting 6 million barrels of crude—passed through the Strait of Hormuz within hours of the announced truce. That passage represented a symbolic reassertion of normalcy in one of the world's most critical energy chokepoints, and the price tumble reflected market expectations that regional tensions were genuinely dissipating.
However, the situation remains fragile. Vandana Hari, founder of Vanda Insights, cautions that oil markets may have found their nadir for now, warning that "cracks have already emerged in the memorandum of understanding." She argues that prices will likely drift higher amid renewed volatility, since the deteriorating diplomatic backdrop offers traders no rational grounds for confidence that Hormuz transit will normalise sustainably. This assessment reflects a fundamental market concern: without ironclad assurances that the ceasefire holds and that American sanctions relief on Iranian oil proceeds as planned, downstream supply gains remain theoretical rather than secured.
The geopolitical backdrop that would validate confidence in sustained energy market relief remains absent. Roughly 20 per cent of global oil and liquefied natural gas flows transited the Strait of Hormuz before hostilities erupted, and analysts have indicated that trade volumes could return to pre-war levels within months if the US-Iran agreement endures. That potentially enormous supply injection sits at the mercy of Israeli-Hezbollah dynamics in Lebanon, where military escalation continues unabated despite the parallel Middle East peace arrangement. For Malaysian and broader Southeast Asian energy consumers and refineries dependent on stable Persian Gulf supplies, this contradiction between a headline truce and ongoing regional warfare creates profound uncertainty.
Tim Waterer, chief market analyst at KCM, notes that traders remain in a holding pattern, awaiting tangible evidence that tanker traffic through Hormuz is genuinely normalising before committing capital to further price declines. This cautious stance reflects appropriate scepticism: announcements and ink-on-paper agreements matter far less than observable, sustained changes in shipping patterns and production behaviour. Until physical tanker flows and export activities demonstrably increase and stabilise, energy markets will remain vulnerable to sharp reversals if diplomatic progress stalls or collapses.
The promised supply expansion hinges on two mechanisms that remain conditional. Analysts have estimated that the accord could release over 85 million barrels of crude that has accumulated in the Middle East Gulf during the war, representing a significant injection into global inventories. Beyond that stockpile release, the lifting of US sanctions on Iranian oil exports promises to swell available supply further, though implementation depends on sustained political commitment from the incoming administration. Vice President Vance's withdrawal from the Switzerland talks suggests that consensus within the new Washington leadership may be thinner than public statements suggest.
Middle East producers have begun signalling their readiness to restore export capacity. Kuwait Petroleum Corporation announced Thursday that it had lifted all force majeure notices issued during the conflict, implying a return to normal commercial operations. Iraq's Oil Minister Basim Mohammed stated that the nation's oilfields stand prepared to resume full production, with output expected to gradually return to pre-war rates. These declarations from major regional producers underscore the economic incentive driving support for the peace framework: all regional parties recognise that continued conflict perpetuates production constraints and depressed revenues.
Yet the persistence of Israeli military operations against Lebanese targets exposes the agreement's fundamental vulnerability. A lasting truce requires not merely a bilateral US-Iran understanding, but a broader de-escalation that prevents proxy actors and neighbouring states from pulling the entire region back toward conflict. The continuation of Israel's campaign against Hezbollah raises the prospect that even if the US-Iran accord holds technically, the underlying conditions that produced the original confrontation remain unresolved. For energy markets, this means that even a successful ink-signing in Switzerland provides no guarantee against renewed disruptions that could again constrain supplies flowing through Hormuz.
Malaysian policymakers and regional refineries watching these developments face a particularly acute dilemma. Southeast Asia's economies remain heavily dependent on stable Middle East energy supplies, whether crude oil or the liquefied natural gas that represents an increasingly vital source of regional electricity generation. The current situation offers neither clear optimism nor certainty. An enduring US-Iran accord could deliver meaningful price relief and supply security, buttressing regional economic stability. Conversely, if the ceasefire unravels—particularly if Israeli-Hezbollah escalation drags America back into active Middle East combat operations—energy prices could spike sharply, imposing fresh inflationary pressures on economies still recovering from pandemic disruptions.
For now, markets occupy an uncomfortable middle ground. Oil prices have stabilised above their lowest levels, reflecting genuine expectations that the accord may hold. Yet the absence of firm diplomatic momentum, combined with ongoing violence in Lebanon, prevents the sustained selling pressure that would materialise if traders possessed genuine confidence in lasting peace. As the week progressed toward its close, energy markets seemed to be pricing in roughly a 50-50 probability that regional tensions remain manageable versus the risk of renewed escalation—an assessment that leaves considerable upside volatility potential if diplomatic signals continue deteriorating.
