Oil prices slid more than 4% on Monday, Feb. 2, after an apparent thaw in tensions between the U.S. and Iran, following Donald Trump’s claim that Tehran was “seriously talking” with Washington. A stronger dollar, fueled by the nomination of Kevin Warsh as the next U.S. Federal Reserve chairman, also added further pressure on crude.

According to a Reuters report, by 6.13 am EST, Brent crude futures were down $3.34, or 4.8%, at $65.98 per barrel, while U.S. West Texas Intermediate (WTI) fell $3.37, or 5.2%, to $61.84. The declines came just after Brent and WTI posted their strongest monthly gains since 2022 in January—16% and 13% respectively—driven by fears of military conflict with Iran.

UBS analyst Giovanni Staunovo noted that easing Middle East tensions and reduced supply disruptions in the U.S. and Kazakhstan weighed on prices. The U.S. President’s remarks on Saturday followed comments from Tehran’s top security official Ali Larijani, who confirmed negotiations were being arranged.

Persistent threats of U.S. intervention had supported oil prices throughout January, but analysts said the tentative willingness to negotiate has erased much of the geopolitical risk premium. “The weakness in oil this morning is the combination of disappearing geopolitical risk and the uptick in the dollar,” explained PVM analyst Tamas Varga.

The selloff extended across commodities, with gold and silver suffering steep losses, partly due to dollar strength. “Renewed strength in the U.S. dollar makes dollar‑denominated oil more expensive for non‑U.S. buyers, further weighing on prices,” said Priyanka Sachdeva of Phillip Nova.

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Analysts also warned that oversupply concerns are resurfacing. OPEC+ confirmed at the weekend that it will keep output unchanged for March, maintaining a freeze on planned increases through the first quarter of 2026 due to seasonally weaker demand. Global macroeconomic firm, Capital Economics, noted that while geopolitical risks have supported prices, the underlying market remains bearish. “The historical example of last year’s 12‑day war between Israel and Iran, and a well‑supplied oil market, will still bear down on Brent crude prices by end‑2026,” the firm said.

A sustained ascent in oil prices toward $70 per barrel is seen worsening trade deficits for major net-importing economies, most notably India, Japan, and the European Union. Beyond the immediate balance-of-trade pressure, rising energy costs frequently trigger a depreciation of local currencies against the U.S. dollar, effectively “importing” further inflation.

This inflationary surge presents a dual threat: it forces central banks to adopt hawkish monetary stances—potentially raising interest rates—which can dampen consumer spending and stifle overall GDP growth.

• Why did oil prices drop over 4%? Easing U.S.–Iran tensions and a stronger dollar pressured crude.
• How much did Brent and WTI fall? Brent slid to $65.98 and WTI to $61.84 per barrel.
• What role did OPEC+ play? OPEC+ kept output unchanged, reinforcing oversupply concerns.
• How could $70 oil affect economies? It worsens trade deficits, weakens currencies, and fuels inflation

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