The U.S. Navy began blockading Iranian ports Monday morning. By Tuesday, American and Iranian diplomats were boarding planes back to Islamabad for a second round of talks.

WTI is at $97. That number is the market trying to hold both realities in its head at once.

How the Weekend Fell Apart

Talks in Pakistan ran for 21 hours. They ended without a deal.

The sticking points were the same ones that have defined this conflict from the start: uranium enrichment, the Strait of Hormuz, and Iran's proxy network across the region. The Trump administration demanded a full halt to enrichment, dismantlement of major nuclear facilities, and unconditional Hormuz passage. Iran would not sign any of it.

Within hours of the talks collapsing, Trump announced a naval blockade of Iranian ports. The U.S. military confirmed the blockade took effect at 10 a.m. ET Monday.

Oil spiked immediately. Brent hit $102, WTI touched $104 in overnight trading. Then both pulled back.

Why Oil Fell Back Below $100

Three things are keeping prices from holding above $100 despite the blockade.

First, the Hormuz disruption is already priced in. Hormuz has been functionally closed for weeks. The marginal impact of a formal U.S. blockade on top of an already-blocked strait is smaller than it sounds. Markets have been living with this supply loss since early March.

Second, talks are back on. Reports Tuesday confirmed both delegations are returning to Islamabad later this week. As long as a deal remains possible, traders will not fully price the scenario where this conflict drags into summer.

Third, OPEC+ data published this week made the demand side of the equation harder to ignore. The group's March output fell 7.9 million barrels per day — the steepest monthly drop since the early days of COVID-19. Saudi Arabia lost 2.3 million bpd. Iraq collapsed from 4.15 million bpd to 1.63 million bpd. That kind of supply destruction crushes the economies of the producing countries themselves, raising questions about downstream demand that partially offset the supply shock.

The Actual Supply Picture

The OPEC+ numbers confirm what the price action has been hinting at for two weeks. This is not a typical geopolitical spike with a modest disruption under the hood. The Hormuz closure and the attacks on Saudi infrastructure have taken roughly 8 million barrels per day of Gulf production offline or stranded behind a chokepoint.

That is a supply shock with no modern precedent outside of wartime. The 1990 Gulf War removed about 4.3 million bpd from the market at its peak.

The reason oil is not at $150 is that the ceasefire, even while contested, held enough shipping traffic through alternative routes to prevent a complete collapse of supply chains. Saudi Arabia's East-West pipeline, before it was partially struck, provided a meaningful bypass. And strategic petroleum reserve releases from the U.S., IEA members, and others have blunted the worst of the drawdown.

What the Second Talks Need to Solve

The core disagreement has not changed. Iran will not surrender its nuclear program. The U.S. will not accept a Hormuz fee or a partial enrichment freeze.

What may be moveable: the timeline on enrichment drawdown, the terms under which Hormuz reopens, and some kind of face-saving arrangement on the proxy militia question. Pakistan's role as mediator has been effective at keeping both sides at the table — the harder work is finding language both governments can defend domestically.

If the second round in Islamabad produces even a framework agreement, expect WTI to drop sharply toward $85. If it collapses again, the blockade becomes the story and $110 is back on the table.

At $97, the market is pricing roughly even odds.

This article is for informational purposes only and does not constitute financial or investment advice. Oil market conditions can change rapidly. Consult a qualified financial professional before making investment decisions.

Cover photo: USS Donald Cook (DDG-75) in the Persian Gulf. U.S. Navy / public domain.