International oil prices dropped by more than 4 percent after the United States and Iran announced that they had reached a preliminary understanding aimed at ending the war. The prospect of shipping through the Strait of Hormuz resuming has also helped ease market concerns.

On Monday, Brent crude prices fell by $3.58, or 4.1 percent, to $83.75 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude declined by 4.72 percent to $80.87 per barrel.

Pakistan’s Prime Minister Shehbaz Sharif said that, with Pakistan acting as a mediator, the United States and Iran are expected to sign a memorandum of understanding in Switzerland next Friday. U.S. President Donald Trump also stated that, as part of the agreement, the Strait of Hormuz would be reopened and the U.S. naval blockade on Iranian ports would be lifted.

According to analysts, the geopolitical risk premium that had built up in oil markets due to the conflict is now beginning to fade. Investors are increasingly optimistic that global oil supplies will return to normal.

Nearly 20 percent of the world’s oil and liquefied natural gas (LNG) supplies pass through the Strait of Hormuz. Disruptions along the critical shipping route for more than three months had placed significant pressure on global energy markets.

However, experts say the extent of any further decline in oil prices will depend on how quickly Middle Eastern producers can restore output and exports, as well as on the progress of negotiations between Washington and Tehran over the next 60 days.

Meanwhile, the United Kingdom, France, Germany, and Italy have indicated that they are prepared to ease sanctions on Iran if Tehran takes the necessary steps regarding its nuclear program.