World oil prices resumed growth on Tuesday, November 3, after the sharpest drop in the past three months. Investors are reassessing the risks of a prolonged conflict between the US and Iran, as diplomatic contacts have not yet led to concrete agreements, and limited military operations in the area of the Strait of Hormuz continue.

According to Bloomberg, during trading the price of benchmark Brent was approaching $107 per barrel, while American West Texas Intermediate (WTI) again exceeded $98.

The previous day the oil market experienced a sharp collapse amid expectations of a possible diplomatic settlement of the conflict in the Middle East. At the close of trading on November 2, Brent fell by 7.6% to $104.77 per barrel, while WTI lost 7.4% and ended the session at $96.46. For both grades it was the largest one-day drop in three months.

The sell-off was triggered by reports of Washington and Tehran's readiness to continue negotiations. Iranian President Masoud Pezeshkian said that the country's supreme leader Mojtaba Khamenei had granted the government additional powers for diplomatic consultations.

US President Donald Trump also reported some progress in contacts with the Iranian side and said he was in no hurry to decide on resuming large-scale military action.

However, the prospects for a quick agreement remain uncertain. Tehran insists on ending the American naval blockade, easing sanctions and unlocking frozen assets. Washington, for its part, demands concessions regarding Iran's nuclear program.

Additional uncertainty is created by the continuation of limited military operations. According to The Wall Street Journal, cited by Bloomberg, on November 2 American forces struck the Iranian island of Qeshm near the entrance to the Strait of Hormuz. Iranian state agency IRNA reported five explosions on the island.

American officials characterize such operations as defensive, aimed at preventing attacks against US military and commercial vessels. At the same time, the continuation of strikes indicates that even with intensified diplomatic contacts, military risks in the region remain high.

Of particular importance for the oil market is the situation in the Strait of Hormuz, through which key energy export routes from the Persian Gulf pass.

As Bloomberg reported on October 31, shipping volumes through the strait amounted to approximately 80% of pre-war levels. Despite the continuation of shipping, the risks of attacks on tankers have significantly increased the cost of insurance and maritime transport.

According to the agency's estimates, during October at least 28 reports of damage to vessels in the strait area were recorded in open sources. Some of the attacks targeted engine rooms, causing vessels to lose the ability to move independently and require lengthy repairs.

The consequences of this confrontation are felt by both sides. The American blockade has significantly limited Iran's oil exports, depriving it of a large part of foreign exchange earnings. At the same time, risks to shipping maintain high transport costs and fuel prices, increasing economic pressure on the US and other energy importers.

Thus, even a partial restoration of oil supplies from the Persian Gulf does not remove the geopolitical component of the cost of oil. For a sustainable decline in prices, the market needs not only statements about a possible agreement, but also a real reduction in risks for maritime transport.

Further dynamics of quotations will depend on the results of negotiations between Washington and Tehran, the security of shipping in the Strait of Hormuz and possible new military decisions by the US after the midterm elections to Congress on November 3.

Based on materials from: Bloomberg, Bloomberg, Financial Times