Oil prices climb after Trump rejects Iran plan to reopen Strait of Hormuz

The Diplomatic Impasse and Market Reaction

Energy markets experienced immediate volatility following the rejection of Tehran’s terms. Prices initially jumped over $4 a barrel in early trade before paring gains on expectations that Qatari mediators would step in to hold separate talks with the U.S. and Iran. An official briefed on the negotiations stated that Qatari mediators were expected to hold talks with Iranian Foreign Minister Abbas Araqchi in New York and with U.S. officials on Monday or Tuesday. These diplomatic efforts focus on an amended version of a seven-day proposal presented by Iran on the sidelines of the United Nations General Assembly.

President Trump told Axios in a phone interview on Sunday that he expected U.S. negotiators to engage in more talks this week, keeping diplomatic channels open despite dismissing the initial overture. Earlier, Trump told reporters that Iran was “dying” and had “no money coming in,” adding that Tehran had “outsmarted themselves” by attempting to close the vital trade route.

Commercial shipping through the waterway remains constrained. Maritime intelligence platform MarineTraffic noted 132 ship passages through the Strait of Hormuz between September 21 and 27, improving from 116 the prior week but staying well below the roughly 130 daily crossings typical before the conflict began in February.

Crude Flows and Regional Pressures

Supply deficits persist despite a rebound in regional exports. Preliminary data from Kpler showed that crude oil exports from key Middle East producers rose to 12.8 million barrels per day in September, the highest level since the war started in February, as Saudi Arabia and the United Arab Emirates boosted shipments. Shipments via the Strait of Hormuz hit about 7.4 million barrels per day this month. However, UBS analyst Giovanni Staunovo noted that despite increased vessel traffic, flows remain below pre-conflict levels, keeping the global market undersupplied.

Geopolitical tensions extended beyond the maritime chokepoint. Saudi Foreign Minister Prince Faisal bin Farhan arrived in Washington on Monday for meetings with U.S. Secretary of State Marco Rubio, according to the Saudi state news agency, amid ongoing hostilities between Riyadh and Yemen’s Iran-backed Houthis. In response to altered export routes, Saudi Aramco is considering offering discounts on official selling prices for oil loaded off Oman to compensate buyers for record freight rates, according to five sources familiar with the matter.

Refining Bottlenecks and Surging Diesel Costs

Refined product markets faced acute pressures as diesel prices hit record highs, prompting the White House to weigh regulatory relief that would allow broader sales of red-dyed diesel to curb soaring fuel costs, according to two sources familiar with the discussions. Meanwhile, the U.S. Transportation Department finalized sharply lower vehicle fuel economy standards on Monday.

The premium of Brent futures over WTI rose on Monday to its highest level since May for the third time in four trading sessions. Goldman Sachs reported that while Europe and Latin America remain primary destinations for U.S. diesel shipments, a tightening shock would likely spread rapidly across the global economy. These disruptions compound regional shortages driven by Ukrainian strikes on Russian energy infrastructure and subsequent Moscow-led export bans.