Oil prices declined sharply on Thursday following a reversal by President Donald Trump, who stepped back from earlier threats of additional military strikes against Iran and indicated that a peace agreement might be within reach. The shift in the U.S. administration’s stance came amid escalating tensions after two consecutive days of hostile exchanges between American and Iranian forces.

Earlier in the day, oil markets experienced volatility as investors grappled with concerns about a potential escalation of conflict. Brent crude, the global benchmark, fell more than 4 percent in late trading, after closing the day down 2.9 percent at $90.38 per barrel. Similarly, West Texas Intermediate (WTI) crude, the U.S. benchmark, dropped 2.6 percent to settle at $87.71 per barrel before extending losses beyond 4 percent.

The Strait of Hormuz, a crucial maritime passage between Iran and Oman through which nearly 20 percent of the world’s oil supply transits, remained a focal point for market observers. Despite recent confrontations and the downing of a U.S. Army Apache helicopter near the strait on Monday, oil prices had remained relatively muted until the latest flare-up.

Stock markets responded positively to Trump’s unexpected moderation. The S&P 500 closed 1.8 percent higher after a volatile session, rebounding from two days of losses. In Asia, markets showed mixed results: shares in Taiwan slipped slightly, while Japan and South Korea posted modest gains. European equities also benefited, with the Stoxx 600 index rising by 0.5 percent.

Gasoline prices in the United States edged slightly lower to an average of $4.13 per gallon, according to the AAA motor club, although prices have surged 39 percent since the onset of the conflict. Diesel prices retreated to $5.28 per gallon but remain elevated, up 40 percent over the same period. Analysts noted that gasoline prices often lag behind crude oil movements by several days, explaining some of the recent disjointed trends.

Amid the ongoing uncertainty, experts highlighted concerns about inflationary pressures linked to the conflict. Diane Swonk, chief economist at KPMG US, emphasized the difficulty facing the Federal Reserve as inflation appears to be gaining momentum. “Delaying rate hikes is riskier today than it was as the economy emerged from the pandemic,” she stated, warning that inflation has persisted for five years since the pandemic and is showing signs of becoming entrenched. Swonk suggested that despite pressure on new Fed chair Kevin Warsh to consider rate cuts, a move to raise rates later this year remains likely.

Adding to the market’s complex landscape, global strategists Thierry Wizman and Gareth Berry of Macquarie Asset Management noted that other factors, such as the performance of high-profile stocks like SpaceX following its IPO, could influence investor sentiment independently of geopolitical developments in the Persian Gulf.