Oil Markets Rally as Trump Rejects Iran's Strait of Hormuz Reopening Offer

Global oil prices climbed sharply on Monday after United States President Donald Trump dismissed an Iranian proposal that would have seen the Strait of Hormuz reopened within a week, dashing short-term hopes of a de-escalation in the conflict between Washington, Israel and Tehran.

Brent crude, the international benchmark for oil pricing, jumped more than 3 percent during Asian trading hours, coming close to $108 a barrel at its peak. The contract later gave back some of those gains, with November futures settling at $107.35 a barrel shortly before 08:00 GMT.

The rally underscores how tightly energy markets are now tethered to the trajectory of the US-Israel war on Iran, now well into its seventh month. The Strait of Hormuz, a narrow waterway connecting the Gulf to the Gulf of Oman and the Arabian Sea, remains the single most important chokepoint for global oil shipments, and any signal that it could stay closed for longer tends to feed directly into crude prices.

Trump's rejection came on Saturday, when he told reporters that Tehran's latest offer for ending the war was not acceptable. Iran had unveiled the proposal just a day earlier at the United Nations General Assembly. Under its terms, Washington would have released frozen Iranian assets, lifted sanctions and ended its naval blockade of Iranian ports. In exchange, Iran would have reopened the strait and returned to negotiations over its nuclear programme within seven days.

The White House's dismissal of that framework leaves the diplomatic track stalled and preserves the supply-side risks that have kept oil traders on edge since the conflict began in late February. Before the first US and Israeli strikes, roughly one-fifth of the world's oil supply passed through the strait on a daily basis.

Shipping activity in the waterway has collapsed since the outbreak of hostilities, with a series of attacks on commercial vessels in the Gulf — most of them attributed to Iran or groups aligned with it — deterring operators from using the route. According to the maritime intelligence platform MarineTraffic, vessels made 132 transits of the strait between September 21 and 27, up modestly from 116 the previous week. That remains a fraction of the pre-war norm of about 130 crossings per day, illustrating how far commercial traffic has fallen.

The supply disruption has been compounded by the US naval blockade on Iranian ports, a measure that Tehran had sought to have lifted as part of its proposal. With that offer now off the table, traders are pricing in the prospect of prolonged restrictions on Iranian exports and continued risk premiums for any vessel transiting the region.

Equity markets in the Asia Pacific delivered a mixed response to the latest developments. The region's session followed a positive finish on Wall Street, where the benchmark S&P 500 closed Friday with a gain of 0.5 percent. Japan's Nikkei 225 slipped 0.73 percent, while South Korea's Kospi fell 2.70 percent, reflecting concerns that higher energy costs could weigh on import-dependent economies.

Hong Kong's Hang Seng Index bucked the trend, rising 0.54 percent, and Australia's S&P/ASX 200 edged up 0.17 percent. The divergence suggests investors are still weighing the inflationary implications of costlier crude against the relative resilience of different regional economies.

Energy analysts note that the market reaction to Trump's decision was amplified by the fact that Iran's proposal had briefly raised the possibility of a near-term supply normalisation. Even the hint that the strait might reopen within a week was enough to introduce a risk premium into prices, and its rejection removed that possibility, at least for now.

The broader picture is one of a war that has already reshaped global energy flows. With roughly a fifth of world oil supplies normally routed through Hormuz, the near-shutdown of traffic has forced importers to seek alternative sources and draw down inventories. The longer the strait remains disrupted, the more pressure builds on prices and on economies already contending with elevated inflation.

Whether the diplomatic impasse can be broken remains uncertain. Iran's proposal, presented at the UN General Assembly, represented its most concrete public offer to date, linking sanctions relief and an end to the naval blockade with the reopening of the strait and a return to nuclear talks. Washington's rejection signals that the US is seeking different terms, though it has not publicly outlined a counteroffer.

For now, markets appear to be operating on the assumption that the conflict will persist and that the Strait of Hormuz will remain largely closed to commercial shipping. That assumption is likely to keep oil prices volatile, with each new statement from Washington or Tehran capable of moving benchmarks by several percentage points in a single session.

The coming days will be closely watched for any sign of renewed diplomacy, as well as for further data on shipping traffic through the strait. MarineTraffic's weekly figures have become a key indicator of how severely the war is constraining one of the world's most critical trade routes, and the modest increase recorded in the latest week offers little comfort to a market bracing for continued disruption.